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Prepare the journal entries that should be made

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Question - Cheyenne offers an MP3 download (seven-single medley) as a premium for every 6 candy bar wrappers presented by customers together with $2.60. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is $2.35. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2020 and 2021 are as follows. (All purchases and sales are for cash.)

2020 2021

MP3 codes purchased 270,000 356,400

Candy bars sold 2,993,500 2,832,900

Wrappers redeemed 1,296,000 1,620,000

2020 wrappers expected to be redeemed in 2021 313,200

2021 wrappers expected to be redeemed in 2022 378,000

Required -

(a) Prepare the journal entries that should be made in 2020 and 2021 to record the transactions related to the premium plan of the Cheyenne.

(b) Indicate the amounts for each accounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2020 and 2021.

Reference no: EM132643158

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