Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with $2.50. 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 $2.25. 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.)

Instructions

(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.