P13-9:

(Premium Entries and Financial Statement Presentation) Metlock Candy Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $2.75. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.50. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)

2017 2018

MP3 codes purchased: 380,000 501,600

Candy bars sold: 2,694,500 2,613,000

Wrappers redeemed: 1,824,000 2,280,000

2017 wrappers expected to be redeemed in 2018: 440,800

2018 wrappers expected to be redeemed in 2019: 532,000

(a)Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Sycamore Candy Company.

(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018.