Paige Candy Company offers a coffee mug as a premium for every ten $1 candy bar wrappers presented by customers together with $2. The purchase price of each mug to the company is $1.80; in addition it costs $1.20 to mail each mug. The results of the premium plan for the years 2012 and 2013 are as follows (assume all purchases and sales are for cash):
2012 2013
Coffee mugs purchased 720,000 800,000
Candy bars sold 5,600,000 6,750,000
Wrappers redeemed 2,800,000 4,200,000
2012 wrappers expected to be redeemed in 2013 2,000,000
2013 wrappers expected to be redeemed in 2014 2,700,000
Instructions
(a) Prepare the general journal entries that should be made in 2012 and 2013 related to the above plan by Paige Candy.
(b) Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the Paige Candy Company balance sheet and income statement at the end of 2012 and 2013.