Example 1

Picasso Pizza Company offers its customers a pizza cutter if they send in 4 box tops from its frozen pizza boxes. The company estimates that 60% of the box tops will be redeemed. In 2022, the company sold 800,000 frozen pizzas and customers redeemed 352,000 box tops. Each pizza cutter costs $3.

Required:

Prepare the journal entry to record the liability for the premium plan at December 31, 2022.