Palmer Frosted Flakes Company offers its customers a pottery cereal bowl if they send in 3 boxtops from Palmer Frosted Flakes boxes and $1.00. The company estimates that 60% of the boxtops will be redeemed for the whole redemption period (2019 to 2020). In 2019, the company sold 675,000 boxes of Frosted Flakes and customers redeemed 330,000 boxtops receiving 110,000 bowls. The bowl cost Palmer Company $2.5 each.

Requirement

(a)Discuss the accounting treatment for consideration payable. Which accounting principle is being fulfilled? (2 marks)

(b)Calculate the premium expense in relation to the whole redemption period (from the beginning of 2019 to the end of 2020). Show workings. (2 marks)

(c)Calculate the net cost of actual redemption in 2019. Show workings. (2 marks)

(d)What is the premium liability balance at 31 December 2019. Show workings. (2 marks)