a. Love Co. includes one coupon in each bag of dog food it sells. In return for 20 coupons, customers receive a dog toy that the company purchases for $1.80 each. Love's experience indicates that 75 percent of the coupons will be redeemed. During 2020, 72,500 bags of dog food were sold for $3.99 per bag, 24,000 toys were purchased, and 34,000 coupons were redeemed.

Instructions

Prepare the following journal entries for Love Co. for 2020:

1) Journalize the purchase of the premiums

2) Journalize the sales of dog food

3) Journalize the premiums distributed from actual coupons redeemed

4) Journalize the contingent liability, at year end.

b. Tom's Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2019, the company sold 900 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $100 per unit. In 2019, Hendricks incurred actual warranty costs $30,000. How much is 2019 warranty expense, under the expense warranty approach?

c. XYZ Corporation purchased a limited-life intangible asset for $180,000 on May 1, 2020. It has a useful life of 10 years. What total amount of amortization expense should have been recorded on the intangible asset by December 31, 2021?