Answered: Expense approach. Required: Prepare the…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Ariana Corporation includes two coupons in each box of cereal box and 9 coupons are needed to be redeemed for the customer to receive a child’s toy dog. In 2020, Ariana Corporation purchased 4,700 toy dogs at $1.05 each. They sold 75,100 boxes of cereal at $4.75 per box, of which the coupons portion is valued at $.25 per box. In total, 31,500 coupons were presented for redemption in 2020. It is estimated that 40% of the coupons will eventually be redeemed. The company uses the Expense approach. Required: Prepare the journal entries required for 2020 using the Expense approach, specifically for the sales of the cereal boxes, the purchase of the toy dogs, the redeemed coupons and the accrual required at year end. Show all calculations. If the company had used the Revenue approach instead, how much revenue from the coupons redeemed would be recorded in 2020?

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