Martha Music Shop gives its customers coupons redeemable for Brittany Spears CD collection. One coupon is issued for each dollar of sales. On the surrender of 200 coupons and $5.00 cash, a CD collection is mailed to qualified customers. The cost to mail each CD collection is $1.00. It is estimated that 80% of the coupons issued will be presented for redemption. Sales for the 2007 were $2,050,000 - 70% for cash and 30% on credit. The coupons redeemed in that year totaled 1, 240,000. In addition, in 2007 Tara Music Shop bought 35,000 CD at $8.00/CD for cash. Sales for 2008 were $3,260,000 - 75%for cash and 25%on account, The coupons redeemed in that year totaled 1,975,000.

Instructions

Prepare the following journal entries for 2007 only:

a) Sales

b) Purchase of CDs

c) Redemption of coupons

d) Estimated liability related to premium

e) Show the balance in each of the following accounts at the end of 2007:

1. Inventory for Premium Poster/CD

2. Premium Expense

3. Estimated Liability for Premium