In each box of cereal that it produces, Snoopy Cereal Corp. includes a special coupon.The purchaser may redeem 10 coupons for a cheese grater (premium).Each grater costsSnoopy $0.90.

During2017, Snoopy purchased 6,000 gratersand sold 200,000 boxes of cereal @ $3.50 per box. Based on past experience, Snoopy estimates that 60% of the coupons will be redeemed. During 2017, 45,000 coupons were presented for redemption.

During 2018, 8,000 graters were purchased.As well, Snoopy sold 300,000 boxes of cereal at $3.75per box, and 90,000 coupons were presented for redemption.

Instructions(show any calculations)

Prepare all the journal entries that would be made regardingthe cereal sales and the premium plan in both 2017 and 2018.

Problem D-2Derivatives

On January 3, Linus Ltd. purchases a call option for $200 from Lucy Corp. to buy 1,000 Rerun Inc. shares at an exercise price of $42 per share.The option expires May 1.At this time the current market price of Rerun shares is also $42.

On March 31 (Linus year end), the market value of the Rerun shares is $53, and the fair value of the option has increased to $14,000.

On April 15, Linus takes delivery of (buys) the Rerun shares as agreed in the option contract.The market value of Reruns shares is now $54.

Instructions(show any calculations)

a.Calculate the intrinsic value and the time value of this option at 1.January 3 2March 31

b.Prepare general journal entries for the following dates: 1.January 3 2.March 31

3.April 15

Problem D-3 Cash Dividends

At December 31, 2017, Woodstock Corp. has the following shares outstanding (all no par value):

200,000 common shares................................$1,275,000

$5 preferred, 7,200 shares............................... $600,000

The preferred shares are cumulative and participating up to an additional 4%.

Dividends have not been paid since December 31, 2014.

Woodstock now wishes to declare a total cash dividend of $320,000.

Instructions

Prepare the entry for the dividend declaration, separating the dividend into the common and preferred portions. Show all calculations.