The Hwang Candy Corporation offers a CD as a premium for every five chocolate bar wrappers that customers send in along with $2.00. The chocolate bars are sold by the company to distributors for $0.30 each. The purchase price of each CD to the company is $1.80; in addition, it costs $0.50 to mail each CD. The results of the premium plan for the years 2011 and 2012 are as follows (all purchases and sales are for cash):

Instructions
(a) Prepare the journal entries that should be made in 2011 and 2012 to record the transactions related to the Hwang Candy Corporation's premium plan.
(b) Indicate the account names, amounts, 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 2011 and 2012.
(c) For each liability that you identified in (b), indicate whether its account is a financial liability. Explain.

Transcribed Image Text:

2011 2012 CDs purchased Chocolate bars sold Wrappers redeemed 2011 wrappers expected to be redeemed in 2012 2012 wrappers expected to be redeemed in 2013 250,000 330,000 2,895,400 1,200,000 ,500,000 2,743,600 290,000 350,000