Question
Uncle Nenens Company includes one coupon in each package of cereal it sells. A towel is offered as a premium to customers who send in
Uncle Nenens Company includes one coupon in each package of cereal it sells. A towel is offered as a premium to customers who send in 10 coupons and a cash remittance of 10 pesos. The cost to distribute each towel is 5 each. Data for the premium offer are:
--------------------------------------------------First Year-------------Second Year
Packages of cereal sold at 30 each 875000---------------1,400,000
# of towels purchased at 40 per towel 52,500-----------------105,000
# of towels distributed as premiums 35,000-----------------87,500
# of towels to be distributed as
premium Next period 8,750-------------------5,250
The company's general & administrative expense for year 1 are 10% and 15% of total sales respectively, while the total distribution and selling expense is 12% and 16% of total sales respectively. The entity's interest on loans amounted to 120,000 and the current year's tax rate is 30%.
Required: Prepare the Income statement of Uncle Nenens for the 1st year and 2nd year. In addition, state the amount of estimated liability for premiums to be presented in the statement of financial position at the end of the 2nd year
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