(Premium Entries) To stimulate the sales of its Alladin breakfast cereal, Khamsah Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children’s hand puppet.

In 2005, the company purchases 40,000 puppets at $1.50 each and sells 440,000 boxes of Alladin at $3.75 a box. From its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2005, 105,000 coupons are presented for redemption.

Instructions Prepare the journal entries that should be recorded in 2005 relative to the premium plan.