Business Accounting
Consumer Cleaning Products Corporation (CCPC)
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 September 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 October 1, 2009. The coupons expire on October 1, 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 September 30, 2009.
Requirements:
CCPC is considering how it should account for the Fresh & Bright coupon drop that took place on October 1, 2009. In doing so, CCPC asks for your help. Answer the following questions using the Codification when necessary. Be sure to cite the relevant components of the Codificationin your discussion. You do not need to write you answer up in essay form. You can simply number your answers as the questions are numbered below. Please write your answers for each question in complete sentences, and use good grammar and punctuation.
1. What are the accounting issue(s) and the relevant components of the authoritative
literature?
2. When should CCPC recognize the effects of the Fresh & Bright coupon drop in its
financial statements?
3. What is the dollar amount of the effect of the Fresh & Bright coupon drop on CCPC’s financial statements?
4. What would constitute ‘‘sufficient evidence’’ to support CCPC’s expected redemption rate of 2 percent?
5. What are the accounting implications if CCPC’s estimated redemption rate changes to 2.5 percent at a later point in time?
6. How should the effects of the Fresh & Bright coupon drop be reflected in the incomestatement?
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