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Yummy Candy Company: Accounting for coupons

Yummy Candy Company offers a CD single as a premium for every five candy bar wrappers presented by customers together with $3.15. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each CD to the company is $2.90; in addition it costs 50 cents to mail each CD. The results of the premium plan for the years 2012 and 2013 are as follows. (All purchases and sales are for cash.)

2012 2013
CDs purchased 397,500 524,700
Candy bars sold 2,975,600 2,772,900
Wrappers redeemed 1,908,000 2,385,000
2012 wrappers expected to be redeemed in 2013 461,100
2013 wrappers expected to be redeemed in 2014 556,500

Prepare the journal entries that should be made in 2012 and 2013 to record the transactions related to the premium plan of the Yummy Candy Company

Solution Preview

Premiums are offered to stimulate sales and so the cost should be expensed in the period of the sale. The period benefited is not ...

Solution Summary

Premiums are offered to stimulate sales and so the cost should be expensed in the period of the sale. The period benefited is not the same period as the redemption, however, so an estimate must be made when sold by estimating the outstanding premiums that will present for redemption. Your tutorial includes a a proof of the inventory of CDs for both years to help you "see" what is going on.

See tutorial in Excel (attached). Click in cells to see computations. The journal entries are shown for all transactions in both years.

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