Consumer Cleaning Products Corporation (CCPC) is a public company with a calendar year- end. CCPC manufactures detergent that is ultimately purchased (and used) by consumers. The supply chain consists of the following:
- CCPC sells its detergent to a wholesaler;
- The wholesaler sells the detergent to a retailer; and
- The retailer sells the detergent to a consumer.
CCPC launches a new detergent, Fresh & Bright, on December 1, 2009. In connection with this launch, CCPC developed a comprehensive marketing campaign. Part of that campaign involves releasing ('' dropping '' ) approximately 500,000 coupons in Sunday newspapers in locales in which Fresh & Bright will be sold. When a consumer redeems the coupon upon purchasing a bottle of Fresh & Bright from a retailer, the price charged to the consumer is reduced by $2. The retailer at which the coupon is redeemed sends the coupon to a clearinghouse. CCPC reimburses the retailer for the discount provided to the customer.
CCPC discontinues the coupons for its new detergent on December 31, 2009. The coupons expire on December 31, 2010. CCPC has not offered coupons on detergent before, nor have they offered coupons with a one-year expiration period. They have, however, offered coupons with a six-month expiration date on other products. Those coupons had a 1.5 percent redemption rate. CCPC estimates that approximately 2 percent of the detergent coupons will be redeemed by customers prior to the expiration date. However, CCPC does not have any data on the redemption rate for coupons offered on detergent. CCPC has sold (and recognized revenue for) over $2,000,000 of Fresh & Bright into the supply chain by December 31, 2009. The facts of the case are from Consumer Cleaning Products Corporation (CCPC). CCPC estimates that the amounts to be redeemed to retailers for coupons will eventually total $20,000 (500,000 coupons * $2/coupon * 2% estimated redemption rate).
Requirements:
(1) Assume that management's estimated dollar amount of the coupon redemptions ($20,000) is justified. How much, if any, of the $20,000 should be reported as an expense on CCPC's 2011 Income Statement? Your answer should start by providing the most relevant specific citation from the FASB Codification: use their four digit numbering system. You should explain the relevant requirements in that section. You should then explain how the facts of the case connect to the FASB's requirements. This explanation should logically lead to your conclusion.
(2) Do NOT assume that management's estimated dollar amount of the coupon redemptions ($20,000) is justified: it may or may not be. What constitutes sufficient evidence of CPCC's expected redemption rate of 2%? Your answer should start by providing the most relevant specific citation from the FASB Codification: use their four digit numbering system. You should explain the relevant requirements in that section. Explain which facts of the case are most relevant and their implications. Do an internet search to find at least one relevant fact about coupon redemptions. Provide a citation (a web address) and show how this information is relevant to helping you answer the question above. Your explanation of the relevant FASB requirements, the facts of the case, and outside information should logically lead to your conclusion.
The FASB's professional literature is now organized by topic. It is referred to as the "Accounting Standards Codification (ASC)." FASB statements are no longer authoritative GAAP, and therefore, you should not cite them. Each part of the ASC is identified with up to four numbers separated by dashes (e.g., 305-10-15-1). Citations to the ASC should include these numbers rather than page numbers, paragraph numbers, authors, or document titles. A typical citation would be to ASC 305-10-15-1. You should never write "10-15-1" to refer to 305-10-15-1. Be as specific as possible, but sometimes it will be necessary to use fewer than four digits (e.g., "305," or "305-10," or "305-10-15"). No footnote or reference should be used. Write out any acronyms [e.g., write "Accounting Standards Codification (ASC)"] the first time you use it. Do not cite any source other than authoritative literature.
Your case response should be so simple that you will not need to worry about which particular style guideline to use (e.g., APA style).
Writing tips: "affect" is a verb, "effect" is a noun.
Periods and commas belong inside closed quotation marks but outside closed parentheses. (The rules are different in England.)
Be concise. For example, a student in a prior semester wrote "There were numerous reasons given to justify the acquisition of Nextel by Sprint. Some of the reasons given in Sprint's presentation on December 15, 2004 regarding the merger stated that the merger would accelerate..." This is more concisely stated as "There were numerous reasons given to justify Nextel's 2004 acquisition of Sprint including that the merger would accelerate..." In addition to being concise in specific sentences, be concise in each paragraph.
Avoid redundancy. A student in a prior semester wrote "The first step to analyzing Wendy's International's involvement with Baja Fresh is to examine the financial information related to the acquisition of Baja Fresh." The last three words, "of Baja Fresh," were redundant. It would also have been more concisely stated as "First, I examine Wendy's and Baha's financial information at the time of the acquisition." Avoid using multiple paragraphs, whether consecutive or not, to make the same point.
If you want more guidance on grammar, there are several excellent books including "Painless Grammar," "The English Language: A User's Guide," and "Woe is I Jr." There are also several excellent books which focus on business grammar, writing, and communication. Each of these books is typically $10-$15. There are numerous free guides on the web.