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Chapter 13: Q12E (page 695)

(Premium Entries) No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were presented for redemption in 2017. It is estimated that 60% of the coupons will eventually be presented for redemption.
Instructions
Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2017.

Short Answer

Expert verified

Both sides of the journal totals$375,320.

Step by step solution

01

Definition of Redemption of Bonds

Redemption of the bonds can be defined as the process under which the bond issuing entity repays the amount to its bondholder. Such redemption generates capital gains and losses for the investors.

02

Journal entries

Date	Accounts and Explanation	Debit $	Credit $
1	Inventory of premium	$7,040
	Cash		$7,040

2	Cash	$363,000
	Sales revenue		$363,000

3	Premium expenses	$3,520
	Inventory of premium		$3,520

4	Premium expenses	$1,760
	Premium liability		$1,760
		$375,320	$375,320

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Most popular questions from this chapter

(a) Assuming no Fair Value Adjustment account balance at the beginning of the year, prepare the adjusting entry at the end of the year if Laura Company’s available-for-sale debt securities have a fair value of \(60,000 below cost.

(b) Assume the same information as part (a), except that Laura Company has a debit balance in its Fair Value Adjustment account of \)10,000 at the beginning of the year. Prepare the adjusting entry at year-end.

Within the current liabilities section, how do you believe the accounts be listed? Defend your position.

How should a debt callable by the creditor be reported in the debtor’s financial statements?

CA13-7 ETHICS (Warranties) The Dotson Company, owner of Bleacher Mall, charges Rich Clothing Store a rental fee of \(600 per month plus 5% of yearly profits over \)500,000. Matt Rich, the owner of the store, directs his accountant, Ron Hamilton, to increase the estimate of bad debt expense and warranty costs in order to keep profits at $475,000.

Instructions

Answer the following questions.

(a) Should Hamilton follow his boss’s directive?

(b) Who is harmed if the estimates are increased?

(c) Is Matt Rich’s directive ethical?

(Debt and Equity Investments) Cardinal Paz Corp. carries an account in its general ledger called Investments,which contained debits for investment purchases, and no credits, with the following descriptions.

Feb. 1, 2017 Sharapova Company common stock, \(100 par, 200 shares \) 37,400

April 1 U.S. government bonds, 11%, due April 1, 2027, interest payable

April 1 and October 1, 110 bonds of \(1,000 par each 110,000

July 1 McGrath Company 12% bonds, par \)50,000, dated March 1, 2017,

purchased at 104 plus accrued interest, interest payable

annually on March 1, due March 1, 2037, 54,000

(Round all computations to the nearest dollar.)

(a) Prepare entries necessary to classify the amounts into proper accounts, assuming that the debt securities are classified

as available-for-sale.

(b) Prepare the entry to record the accrued interest and the amortization of premium on December 31, 2017, using the

straight-line method.

(c) The fair values of the investments on December 31, 2017, were:

Sharapova Company common stock \( 31,800

U.S. government bonds 124,700

McGrath Company bonds 58,600

What entry or entries, if any, would you recommend be made?

(d) The U.S. government bonds were sold on July 1, 2018, for \)119,200 plus accrued interest. Give the proper entry.

See all solutions

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