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Mullen Music Limited MML carries a wide variety of musical instruments sound reproduction equipment, recorded music, and sheet music MML uses two sales promotion techniques-warranties

Mullen Music Limited (MML) carries a wide variety of musical instruments, sound reproduction equipment, recorded music, and sheet music. MML uses two sales promotion techniques-warranties and premiums-to attract customers. Musical instruments and sound equipment are sold with a one-year warranty for replacement of parts and labour. The estimated warranty cost, based on experience, is 2% of sales. A premium is offered on the recorded and sheet music. Customers receive a coupon for each dollar spent on recorded music or sheet music. Customers may exchange 200 coupons plus $20 for a CD player. MML pays $34 for each CD player and estimates that 60% of the coupons given to customers will be redeemed. MML s total sales for 2011 were $7.2 million: $5.4 million from musical instruments and sound reproduction equipment, and $1.8 million from recorded music and sheet music. Replacement parts and labour for warranty work totalled $164,000 during 2011. A total of 6,500 CD players used in the premium program were purchased during the year and there were 1.2 million coupons redeemed in 2011. The accrual method is used by MML to account for the warranty and premium costs for financial reporting purposes. The balances in the accounts related to warranties and premiums on January 1, 2011, were: Inventory of premium CD players ....... $ 39,950 Estimated premium liability .......... 44,800 Estimated liability for warranties ........ 136,000 Instructions (a) MML is prep

May 22 2020 View more View Less

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