Premium Obligation On the back of its cereal boxes, the Tiger Cereal Company offers a premium to

Question:

Premium Obligation On the back of its cereal boxes, the Tiger Cereal Company offers a premium to its customers. The premium, a toy truck, may be claimed by sending in $1 plus 10 coupons; one is included in each box of cereal sold. The company estimates, based on past experience, that 60% of the coupons will be redeemed. During 2007, the company purchased 240,000 toy trucks at $1.25 each for the premium promotion and sold 5,000,000 boxes of cereal at $1.80 per box. In 2007, 2,200,000 coupons were redeemed.

Required
1. Prepare the journal entries related to the previous promotion (including sales) for 2007.
2. Show how the items related to the premium plan would be reported on the December 31, 2007 balance sheet.

Coupon
A coupon or coupon payment is the annual interest rate paid on a bond, expressed as a percentage of the face value and paid from issue date until maturity. Coupons are usually referred to in terms of the coupon rate (the sum of coupons paid in a...