Concept explainers
1.
Prepare the
1.
Explanation of Solution
Prepare the journal entry to record the sales made during October:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
October | Cash or | 58,800 | |
Sales | 58,800 | ||
(To record the sale of 21,000 cereal boxes) |
Table (1)
Prepare the journal entry to record the purchase of shovel set:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
October | Inventory of premiums | 2,640 | |
Cash | 2,640 | ||
(To record the purchase of toy shovel sets) |
Table (2)
Prepare the journal entry to record the estimated total premium liability:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
October | Premium expenses (2) | 2,940 | |
Estimated premium liability | 2,940 | ||
(To record the recognition of estimated premium liability) |
Table (3)
Working note (1):
Calculate the total box tops estimated for redemption:
Particulars | Amount ($) | Amount ($) |
Total box tops outstanding in October 2016 (A) | 21,000 | |
Estimated percent redeemed (B) | 70% | |
Total box tops estimated for redemption (C) | 14,700 |
Table (4)
Working note (2):
Calculate the amount of premium expenses:
Prepare the journal entry to record the redemption of 12,000 top boxes in October:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
October | Estimated premium liability (3) | 2,400 | |
Inventory of premiums | 2,400 | ||
(To record the redemption of 12,000 top boxes of cereals) |
Table (5)
Working note (3):
Calculate the amount of estimated premium liability:
Prepare the journal entry to record the sales made during November:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
November | Cash or Accounts receivable | 67,200 | |
Sales | 67,200 | ||
(To record the sale of 24,000 cereal boxes) |
Table (6)
Prepare the journal entry to record the purchase of shovel set:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
November | Inventory of premiums | 3,249 | |
Cash | 3,249 | ||
(To record the purchase of toy shovel sets) |
Table (7)
Prepare the journal entry to record the estimated total premium liability:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
November | Premium expenses (4) | 3,360 | |
Estimated premium liability | 3,360 | ||
(To record the recognition of estimated premium liability) |
Table (8)
Working note (3):
Calculate the total box tops estimated for redemption:
Particulars | Amount ($) | Amount ($) |
Total box tops outstanding in November 2016 (A) | 24,000 | |
Estimated percent redeemed (B) | 70% | |
Total box tops estimated for redemption (C) | $16,800 |
Table (9)
Working note (4):
Calculate the amount of premium expenses:
Prepare the journal entry to record the redemption of 16,005 top boxes in October:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
October | Estimated premium liability (5) | 3,201 | |
Inventory of premiums | 3,201 | ||
(To record the redemption of 16,005 top boxes of cereals) |
Table (10)
Working note (5):
Calculate the amount of estimated premium liability:
Prepare the journal entry to record the sales made during December:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
December | Cash or Accounts receivable | 92,400 | |
Sales | 92,400 | ||
(To record the sale of 33,000 cereal boxes) |
Table (11)
Prepare the journal entry to record the purchase of shovel set:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
December | Inventory of premiums | 5,091 | |
Cash | 5,091 | ||
(To record the purchase of toy shovel sets) |
Table (12)
Prepare the journal entry to record the estimated total premium liability:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
November | Premium expenses (7) | 4,620 | |
Estimated premium liability | 4,620 | ||
(To record the recognition of estimated premium liability) |
Table (13)
Working note (6):
Calculate the total box tops estimated for redemption:
Particulars | Amount ($) | Amount ($) |
Total box tops outstanding in December 2016 (A) | 33,000 | |
Estimated percent redeemed (B) | 70% | |
Total box tops estimated for redemption (C) | $23,100 |
Table (14)
Working note (7):
Calculate the amount of premium expenses:
Prepare the journal entry to record the redemption of 20,475 top boxes in October:
Date | Account Titles and Explanations | Debit ($) | Credit ($) |
October | Estimated premium liability (8) | 4,149 | |
Inventory of premiums | 4,149 | ||
(To record the redemption of 20,475 top boxes of cereals) |
Table (15)
Working note (8):
Calculate the amount of estimated premium liability:
2.
Indicate the way in which the inventory of premiums and the estimated liability would be disclosed in the ending balance sheets of Company YC for the months October, November and December.
2.
Explanation of Solution
Balance sheet: Balance Sheet is one of the financial statements that summarize the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the partial balance sheet to record the inventory of premiums and the estimated liability:
Company YC | |||
Balance Sheet Statement (Partial) | |||
At The End of | |||
Assets | October | November | December |
Current assets: | |||
Inventory of premiums | $240 | $288 | $1,230 |
Liabilities | October | November | December |
Current liabilities: | |||
Estimated premium liability | $540 | $699 | $1,170 |
Table (16)
Prepare the T-accounts to determine the estimated premium liability and inventory of premiums:
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Chapter 9 Solutions
Intermediate Accounting: Reporting and Analysis
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