Boston Bagel Company Offered A Commuter Coffee Cup As A Priz

Boston Bagel Company Offered A Commuter Coffee Cup As A Premium For Ev

Boston Bagel Company offered a commuter coffee cup as a premium for every five wrappers presented by customers together with $1.25. The company sells the bagels at $0.80 each. The cost of each mug to the company is $0.85, and there is an additional $0.60 cost to mail each mug to customers. The company has provided the following information regarding the results of the premium plan for the first year of their sales promotion: 280,000 commuter coffee cups purchased; 5,935,750 bagels sold; 987,000 wrappers redeemed; 68,000 wrappers expected to be redeemed next year related to current year sales.

Paper For Above instruction

The Boston Bagel Company's promotional campaign involves distributing commuter coffee cups as rewards for customer purchases, which necessitates appropriate journal entries to record the associated revenues, costs, and liabilities for the first year. This paper presents the detailed accounting entries based on the provided data, applying the principles of revenue recognition, cost matching, and liability accounting in the context of promotional gifts and incentives.

Firstly, the sale of bagels at $0.80 each for 5,935,750 units generates revenue totaling $4,748,600. The journal entry recognizing sales revenue is:

Dr. Accounts Receivable or Cash  $4,748,600

Cr. Sales Revenue                       $4,748,600

This entry records the total sales revenue from bagel sales during the period.

Secondly, since the company offered commuter coffee cups as premiums, an obligation arises to deliver these cups to customers who redeem wrappers. The total number of wrappers redeemed during the year was 987,000, and each premium requires five wrappers. The actual number of cups distributed is therefore 987,000 / 5 = 197,400 cups. This matches the data indicating 280,000 coffee cups purchased, suggesting some cups remain unredeemed or excess purchases. The cost to the company for providing these cups includes the cost per mug ($0.85) and mailing costs ($0.60 per mug).

To record the cost of cups redeemed, the company needs to recognize the expense for 197,400 cups as follows:

Dr. Premium Expense                     $204,790

Cr. Inventory or Supplies - Cups           $204,790

($204,790 = 197,400 cups × ($0.85 + $0.60)).

Similarly, mailing costs amount to $0.60 per mug, totaling:

Dr. Postage Expense                      $118,440

Cr. Accounts Payable or Cash             $118,440

(197,400 mugs × $0.60).

From an accounting perspective, the company should recognize a liability at the end of the reporting period for the remaining cups purchased but not yet redeemed, which is the purchase of 280,000 cups minus 197,400 cups redeemed, resulting in 82,600 cups remaining. The remaining cups' cost should be accrued as a liability as well:

Dr. Supplies - Cups (or similar asset account)  $70,410

Cr. Premium Liability                              $70,410

(Remaining cups cost: 82,600 × ($0.85 + $0.60) = $70,410).

Additionally, the company expects 68,000 wrappers to be redeemed next year related to current sales. To reflect this anticipated future liability, an adjusting entry is necessary to recognize this obligation as follows:

Dr. Premium Expense                         $9,312

Cr. Premium Liability                      $9,312

(68,000 wrappers × $1.25, the premium value, adjusted if necessary for the specific accounting policy on future obligations).

In summary, the journal entries for the first year include recording the actual sales, recognizing the costs of premium cups and mailing expenses, and establishing liabilities for unredeemed cups and future redemptions. Proper application of matching principles and liability recognition ensures the financial statements accurately reflect the company's promotional activities and related obligations. These entries adhere to generally accepted accounting principles (GAAP) by matching expenses with the period of benefit and recognizing liabilities for expected future costs.

References

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