Premium Obligation Yummy Cereal Company is offering one toy shovel set for 15 box tops of its cereal. Year to date sales have been off, and it is hoped that this offer will stimulate demand. Each shovel set costs the company $3. The following data are available for the last three months of 2007:
|
Month |
Boxes of Cereal Sold |
Shovel Sets Purchased by the Company |
Box Tops Redeemed by Customers |
|
October |
21,000 |
880 |
12,000 |
|
November |
24,000 |
1,083 |
16,005 |
|
December |
33,000 |
1,697 |
20,745 |
It is estimated that only 70% of the box tops will be redeemed. The cereal sells for $2.80 per box.
Required
1. Prepare journal entries for each month to record sales, shovel set purchases, redemptions, and closing entries, assuming that the books are closed at the end of each month.
2. Assuming Yummy prepares monthly financial statements, indicate how the premiums and the estimated liability would be disclosed on Yummy’s ending balance sheets for October, November, and December.