In each box of cereal that it produces, Crackle Cereal Corp. includes a special coupon. The purchaser may redeem 10 coupons for a cheese grater (premium). Each grater costs Crackle $1.00. During 20×5, Crackle purchased 6,000 graters and sold 200,000 boxes of cereal @ $4.00 per box. Based on past experience, Crackle estimates that 50% of the coupons will be redeemed. During 20×5, 45,000 coupons were presented for redemption. During 20×6, 8,000 graters were purchased. As well, Crackle sold 300,000 boxes of cereal at $4.75 per box, and 90,000 coupons were presented for redemption.
Required:
a) Prepare all the journal entries that would be made regarding the cereal sales and the premium plan in 20×5.
b) Calculate the balance in the estimated premium liability account for December 31, 20×6.
