1. The issue in this case is how CCPC should account for the coupons that they are sending out. Section 605-50-25 of the Codification addresses the recognition of revenue from incentives to customers.
2. According to Codification 605-50-25-3, the cost associated with the coupon, as long as it does not result in a loss on the sale of the product, should be recognized at the later of the following:
a. The date when the vendor recognizes revenue from the sale of the product. b. The date at which the sales incentive (coupon) is offered. According to the problem, CCPC would recognize revenue of $2M by September 30, 2009 and the offer date on the coupon is October 1, 2009 so the later of the two dates is the offer date. The incentive should be accrued on October 1, 2009.
3. Section 650-50-25-4 states that if a reasonable estimate of the amount of coupons that will be redeemed CCPC should use this estimate to account for the amount to accrue. In this case if there is a reasonable assurance that they can expect a 2% redemption rate then they should account for 10,000 coupons to be redeemed at $2 or $20,000. If they cannot reasonable estimate the amount to be redeemed they should account for the total amount of the redemption, in this case $1 million.
4. Looking at the historical data they have concerning the redemption rate of 1.5% on the 6 month coupons they offer, I think they have sufficient evidence to consider 2% redemption on the Fresh & Bright coupons. The longer the redemption period the more coupons they can expect to be redeemed so 2% is not a far-fetched estimate.
5. If there was not enough information to account for 2% redemption then there would be no implication since the total amount would have been accounted for. However, according to Codification 650-50-25-9 the resulting change in an estimated amount should be recognized immediately. This would be...
Please join StudyMode to read the full document