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Premium Entries and Financial Statements

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Sycamore Candy Company offers a CD single as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for .30 cents each. The purchase price of each CD to the company is $2.25; in addition it cost .50 cents to mail each CD. The results of the premium plan for the years 2010 and 2011 are as follows. (All purchases and sales are for cash.)

2010 2011
CD's purchased 250,000 330,000
Candy bars sold 2,895,400 2,743,600
Wrappers redeemed 1,200,000 1,500,000
2010 wrappers expected to be redeemed in 2011 290,000
2011 wrappers expected to be redeemed in 2012 350,000

(a) Prepare the journal entries that should be made in 2010 and 2011 to record the transactions related to the premium plan of the Sycamore Candy Company.
(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2010 and 2011.

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Solution Summary

This solution includes how to journalize entries relating to a premium plan as well as identify the account names, amounts and classifications of the items related to the premium plan that would appear on the balance sheet and income statement. Attached as a 700+ word document

The problem shown here is taken from Intermediate Accounting, 13th ed., Wiley Publishing, however, the detail step-by-step explanation of this complicated topic provides students with a clear understanding of the concepts. Thank you for using BrainMass.com. Have a great day!

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