To increase the sales of its Sugar Kids breakfast cereal, Kwiecien Corporation places one coupon in each cereal box. Five coupons are redeemable for a premium consisting of a child's hand puppet. In 2014, the company purchases 40,000 puppets at $1.50 each and sells 480,000 boxes of Sugar Kids at $3.75 a box. Kwiecien estimates that $0.20 of the sale price relates to the hand puppet to be awarded. From its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2014, 115,000 coupons are presented for redemption.

Instructions

(a) Prepare the journal entries that should be recorded in 2014 relative to the premium plan, assuming that the company follows a policy of charging the cost of coupons to expense as they are redeemed and adjusting the liability account at year end.

(b) Prepare the journal entries that should be recorded in 2014 relative to the premium plan, assuming that the company follows a policy of charging the full estimated cost of the premium plan to expense when the sales are recognized.

(c) How would the accounts resulting from the entries in parts (a) and (b) above be presented on the 2014 financial statements?

(d) Prepare the journal entries that should be recorded in 2014 relative to the premium plan, assuming that the company follows IFRS and accounts for its promotional programs in accordance with the revenue approach and IFRIC 13.

(e) How would the accounts resulting from the entries in part (d) above be presented on the 2014 financial statements?

(f) Compare your answer to part (c) with your answer to part (e). Which approach to accounting for premiums would you recommend to the company? Why?