Essay about Case Analysis

3281 Words May 28th, 2013 14 Pages
Intermediate Accounting

A Series of Revenue Recognition Research
Cases Using the Codification

Case One: Consumer Cleaning Products Corporation (CCPC) Case Two: Landline Corporation Case Three: Assembly Lines Incorporated (ALI)

Submitted By
Chen Chongxiao Sweta Shah Xiaoyun zhang

Case One
Requirement 1: The accounting issue in this case is how to account for the coupons which was introduced on Sep. 1 2009 for the new detergent Fresh & Bright Marketing campaign by a detergent manufacturer called Consumer Cleaning Products
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Requirement 3: According to FASB Codification 605-50-25-4, if the amount of future rebates or refunds can be reasonably and reliably estimated, the expected redemption rate should be taken into account when calculating the cost of sales incentives. Otherwise, a liability (or deferred revenue) should be recognized for the maximum potential amount of the refund or rebate. In this case, CCPC estimates that customers will redeem approximately 2 percent of the detergent coupons. We analyze the dollar amount of the effect of the coupons in the following two scenarios:

| If there is sufficient evidence to support the 2% expected redemption rate | If there is NOT sufficient evidence to support the 2% expected redemption rate | Accrual of the coupons | Coupons to be redeemed=total coupons*expected redemption rate: 500,000*2%=10,000Total discounts= expected redeemed coupons*per coupon discount: 10,000*2=$20,000 | Maximum potential of refunds=total coupons*per coupon discount: 500,000*2=$1,000,000 |

Requirement 4: FASB Codification 605-50-25-4 indicates that a vendor’s ability to make a reasonable and reliable estimate of future rebates or refunds may be impaired by the following factors:

a. Relatively long periods in which a particular rebate or refund may be claimed.
b. The absence of historical experience with similar types of sales incentive programs…

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