Cracker Corporation began a special promotion in July 2016 in an attempt to increase sales. A coupon was included in various print advertisements. Customers could send in five coupons for a free prize. Each prize cost Cracker Corporation $2.00. Cracker's management estimated that 70% of the coupons would be redeemed. For the six months ended December 31, 2016, the following information is available

Coupons distributed 2,000,000

Prizes purchased 240,000

Coupons redeemed 560,000

Required:

Record all necessary journal entries for the premium offer for 2016.

The journal entries for the premium offer for 2016 would be as follows:

Debit Credit

Pemium Expenses A/C dr. $800,000

Current Liabilty $800,000

Prize A/C dr. $480,000

Cash $480,000

Current Liabilty A/C dr. $224,000

Prize $224,000

Explanation:

In order to record the journal entries for the premium offer for 2016, we need to calculate first the amount of the premium expenses as follows:

Pemium Expenses A/C dr = ($2,000,000/5) * 2=$800,000

Therefore journal entries for the premium offer for 2016 would be as follows:

Debit Credit

Pemium Expenses A/C dr. $800,000

Current Liabilty $800,000

Prize A/C dr. $480,000

Cash $480,000

Prize=$560,000/5*2=$224,000

Current Liabilty A/C dr. $224,000

Prize $224,000