The Happy Cereal Company includes a premium in each box of its cereal. For four premiums plus $$2\mathrm{.}00,$ customers are entitled to a plastic wiggle worm that costs Happy $$4\mathrm{.}50$ each. Happy expects $60\%$ of the premiums to be redeemed. In $2016,$ Happy sold $500,000$ boxes of cereal and distributed $25,000$ wiggle worms.

Refer to Exhibit $9-1.$ What is Happy's estimated liability for unredeemed premiums on December $31,2016?$

a$.$

$$225,000$

b$.$

$$125,000$

c$.$

$$337,500$

d$.$

$$187,500$

Prepare the journal entries