Homework SourseProblem 1312 Blue Music Emporium carries a wide variety of m
Problem 13-12
Blue Music Emporium carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. Blue uses two sales promotion techniques—warranties and premiums—to attract customers.
Musical instruments and sound equipment are sold with a one-year warranty for replacement of parts and labor. The estimated warranty cost, based on past experience, is 2% of sales.
The premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons and $10 for an MP3 player. Blue pays $23 for each player and estimates that 70% of the coupons given to customers will be redeemed.
Blue’s total sales for 2017 were $7,750,000—$6,058,000 from musical instruments and sound reproduction equipment and $1,692,000 from recorded music and sheet music. Replacement parts and labor for warranty work totaled $169,600 during 2017. A total of 6,940 players used in the premium program were purchased during the year and there were 1,318,000 coupons redeemed in 2017.
The balances in the accounts related to warranties and premiums on January 1, 2017, were as shown below.
Blue Music Emporium is preparing its financial statements for the year ended December 31, 2017. Determine the amounts that will be shown on the 2017 financial statements for the following. (Round answers to 0 decimal places, e.g. 125.)
| Inventory of Premiums | $ 37,770 | |
| Premium Liability | 48,640 | |
| Warranty Liability | 145,200 |
Solution
Blue Music Emporium Total Sales $ 7,750,000.00 Sales of Musical Instrument and Sound Reproduction instrument $ 6,058,000.00 Sale of Recoreded Music and Sheet Music $ 1,692,000.00 Warranty Cost of Music Instrument and =2% of Sales $ 121,160.00 Warranty Liability 1/1/17 $ 145,200.00 Premium Liability 1/1/17 $ 48,640.00 Replacement Part and Labor for Warranty Work(given) $ 169,600.00 Redemption of Mp3 Coupons 70% of ($1692000) Cost of Mp3 $ 23.00 Cash Received $ 10.00 Net of cost $ 13.00 Customer Exchange Number of Coupon 200 Coupon Redemeed for MP3=(1318000/200) 6590 Warranty Cost for MP3=(6590*$13) $ 85,670.00 Warranty Expense $ 121,160.00 Warranty Liability Warranty Liability=Beginning Liability+ Warranty Exp-Cost of repalcemet part and Warranty for labor work Warranty Liability on 1/1/2017 $ 145,200.00 Warranty Expense $ 121,160.00 Replacement Part and Labor for Warranty Work(given) $ 169,600.00 Warranty Lbility 31/12/2017 $ 96,760.00 Premium Expense Redemption of Coupon $ 5,922.00 Net of cost($23-$10) $ 13.00 Premium Expense=(5922*$13) $ 76,986.00 Premium Liability Beginning Liability $ 48,640.00 Premium Expense $ 76,986.00 Warranty cost for MP3 $ 85,670.00 Premium Liability $ 39,956.00 Inventory of Coupon Beginning Inventory 37,770 Purchased 6940 Redemption of Coupon 5922 Ending Inventory 38,788
