Ivanhoe Company includes 1 coupon in each box of soap powder

Ivanhoe Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, Ivanhoe Company purchased 8,800 premiums at 85 cents each and sold 101,000 boxes of soap powder at $3.30 per box; 42,000 coupons were presented for redemption in 2017. It is estimated that 60% of the coupons will eventually be presented for redemption.

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2017. (If no entry is required, select \"No Entry\" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation

Debit

Credit

(To record the premium inventory)

(To record the sales)

(To record the expense associated with the sale)

(To record the premium liability)

Solution

Accounts Title & Explanation

Debit

Credit

Inventory Premiums

7480

Cash(8800 x .85)

7480

Cash

333300

Sales(101000 x $3.30)

333300

Premium Expense

3570

Inventory Premiums(42000 ÷ 10) X $.85

3570

Premium Expense

1581

Estimated Liability Premiums[(101000 X 60%) – 42000] ÷ 10 X .85

1581