Problem 13-9

Pronghorn Company offers an MP3 download (seven-single medley) as a premium for every 5 candy bar wrappers presented by customers together with $2.70. 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 $2.45. 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		280,000		369,600
Candy bars sold		3,158,600		2,890,500
Wrappers redeemed		1,344,000		1,680,000
2017 wrappers expected to be redeemed in 2018		324,800
2018 wrappers expected to be redeemed in 2019				392,000

Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Pronghorn Company

Account Titles and Explanation Debit Credit 2017 Inventory of Premiums 686,000 Cash 686,000 (To record the premium inventory.) Cash 947,580; Sales Revenue (To record the sales.) Cash 947,580 591,360 Premium Expense 67,200 Inventory of Premiums 658,560 (To record the expense associated with the sale.) Premium Expense 3248 Premium Liability 3248 (To record the premium liability.) 2018 Inventory of Premiums 905,520 Cash 905,520 (To record the premium inventory.) Cash 867,150 Sales Revenue (To record the sales.) Cash 867,150 735,280 Premium Expense 84,000 Premium Liability 3920 Inventory of Premiums 823,200 (To record the expense associated with the sale.) Premium Expense 3,920 Premium Liability 3,920 (To record the premium liability.) Indicate the amounts for each accounts, 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. Amount Account 2017 2018 Classification Inventory of Premiums 27440 82320Current Asset Premium Liability 3248 3920 Current Liability Premium Expense 70448 82920Selling Expense