Sycamore Candy offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30¢ each. The purchase price of each download code to the company is $2.25. In addition, it costs 50¢ to distribute each code. The results of the premium plan for the years 2025 and 2026 are as follows. (All purchases and sales are for cash.)

Instructions

a. Prepare the journal entries that should be made in 2025 and 2026 to record the transactions related to the premium plan of the Sycamore Candy.

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 2025 and 2026.

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MP3 codes purchased Candy bars sold Wrappers redeemed 2025 wrappers expected to be redeemed in 2026 2026 wrappers expected to be redeemed in 2027 2025 250,000 2,895,400 1,200,000 290,000 2026 330,000 2,743,600 1,500,000 350,000