Zoebug’s Emporium Inc. rewards its frequent shoppers with gift cards. The premium program awards members one point for every dollar spent. Zoebug’s provides members with a $10 gift card for every 1,000 points redeemed, which can then be used to purchase additional merchandise at Zoebug’s. Pertinent facts follow: 

■ Points expire six years after they have been earned. Historically, 70% of the points will be redeemed. 

■ Zoebug allocates $14,895,000 of the contract amount to sales and $105,000 to the reward program. 

■ Zoebug’s markup on cost is a constant 50% [items costing $1 are sold for $1 × (1 + 50%) = $1.50]. 

■ In 2018, Zoebug’s cash sales totalled $15,000,000. Zoebug’s never sells on account. 

■ In 2019, customers redeemed 3,000,000 points. 

■ In 2020, customers redeemed 4,500,000 points. 

Required:

a. Prepare summary journal entries to record sales-related revenue in 2018. 

b. Prepare summary journal entries to recognize premium revenue in 2019 and 2020. 

c. Provide a brief explanation as to why companies offer incentive programs.