Provisions Millan

Assignment

1. Monumental studios, in an effort to promote the release of their new movie “Ninjas from Space”
began a national sales promotion campaign. Two coupons from specially marked boxes (one coupon
in each box) of “Sugar Charms” cereal are redeemable for one ticket to the show. Tickets cost
Monumental Php 1.50 each. Monumental estimates that 40 percent of the coupons will be redeemed.
At the end of 2002, the following information is available:

Boxes of cereal sold 640,000

Movie tickets purchased by Monumental 140,000
Coupons redeemed 250,000

a. How much is the premium expense in 2002?

b. How much is the estimated liability as of December 31, 2002?

Requirement (a):
(640,000 ÷ 2) x 40% x ₱1.50 = 192,000

Requirement (b):
Liability for premium

(250K / 2) x 1.50 187,500 192,000 Premium expense

4,500

2. Quaver to Tremble Co., launched a sales promotion in 20x1. For every ten empty packs returned to
Quaver plus Php 50, customers will receive a set of kitchen knives. Quaver estimates that 40% of the
packs sold will be redeemed. Information on transactions during the year is as follows:

Units Amounts
Sales 1,000,000 1,500,000
Sets of kitchen knives purchased at Php 200 per set 1,200,000 240,000,000
Number of packs redeemed 360,000

Provide the journal entry to record the premium expense

Sales in units 1,000,000

Multiply by wrappers estimated to be presented
for redemption 40%
Estimated wrappers to be presented for redemption 400,000
Divide by: Required number of wrappers for redemption 10
Estimated number of premiums to be distributed 40,000
Multiply by: Net cost of premium (P200 purchase
cost less P50 cash requirement from customer) P150
Premium expense P6,000,000

20x1 Premium expense 6,000,000

Estimated liability for premiums 6,000,000
to record premium expense

MIAW