Blossom Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, Blossom Company purchased 9,500 premiums at 75 cents each and sold 120,000 boxes of soap powder at $3.00 per box; 41,800 coupons were presented for redemption in 2020. It is estimated that 60% of the coupons will eventually be presented for redemption.

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2020.

Dr Purchased premiums 7,125

Cr Cash 7,125

Dr Cash 360,000

Cr Sales 360,000

Dr Premium Expense 3,135

Cr Inventory Premiums 3,135

Dr Premium Expense 2,265

Cr Estimated Liability Premiums 2,265

Explanation:

Blossom Company Journal entry

Dr Purchased premiums 7,125

(9,500*0.75)

Cr Cash 7,125

Dr Cash 360,000

(120,000*3.00per box)

Cr Sales 360,000

Dr Premium Expense 3,135

Cr Inventory Premiums (41,800 : 10 coupons*0.75) 3,135

Dr Premium Expense 2,265

Cr Estimated Liability Premiums 2,265

[ (120,000 * 0.60) - 41,800) : 10 *.75]

=72,000-41,800:10*.75

=30,200:10*.75

=3020*.75

=2,265