Part A (8 marks)

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)

Part B (6 marks)

On August 5, 2018, Famous Furniture shipped 40 dining sets on consignment to Furniture Outlet, Inc. The cost of each dining set was 350 each. The cost of shipping the dining sets amounted to 1,800 and was paid for by Famous Furniture. On December 30, 2018, the consignee reported the sale of 30 dining sets at 850 each. The consignee remitted payment for the amount due after deducting a 6% commission, advertising expense of 600, and installation and setup costs of 780.

Requirement

(a)Discuss the mechanism and accounting treatment for consignment sale. (2 marks)

(b)Calculate the cost of goods that should be recorded by Famous Furniture. Show workings. (2 marks)

(c)What is the net profit recognized by Famous Furniture? Show workings. (2 marks)