Premium Essay

Coupons Accounting Problem


Submitted By Hugo2412
Words 460
Pages 2
Johnson and Johnson (J&J) is a public company with a calendar year end. J&J manufactures toothpaste that is ultimately purchased and used by consumers. The supply chain consists of the following:
• J&J sells its toothpaste to a wholesaler;
• Wholesaler sells the toothpaste to a retailer; and
• Retailer sells the toothpaste to a consumer.
J&J launches a new toothpaste, Shiny Teeth, on September 1, 2012. In connection with this launch, J&J developed a comprehensive marketing campaign. Part of the campaign involves releasing approximately 500,000 coupons in Sunday newspapers in locations in which the new toothpaste will be sold. When a consumer redeems the coupon upon purchasing the product from a retailer, the price charged is reduced by $1. This retailer sends the coupon to a clearinghouse. J&J reimburses the retailer for the discount provided to the customer.
J&J discontinues the coupons for this product on October 1, 2012. The coupons expire on October 1, 2013. J&J has not offered coupons on toothpaste 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. These coupons had a 1.5 percent redemption rate. J&J estimates that approximately 2 percent of the toothpaste coupons will be redeemed by customers prior to the expiration date. However, J&J does not have any data on the redemption rate for coupons offered on toothpaste. J&J has sold and recognized revenue for over $2,000,000 of Shiny Teeth into the supply chain by September 30, 2012.
J&J is considering how it should account for the Shiny Teeth coupon drop that took place on October 1, 2012. In doing so, J&J asks for your help. Prepare a memo addressing the following questions. Base your analysis of these questions on the relevant authoritative literature and discuss the support in that

Similar Documents

Premium Essay


...developed here provide the basis for the accounting treatment of bond premiums, discounts, and interest payments. Amortization of a Bond’s Premium Bonds are priced at a premium when the coupon rate exceeds the yield to maturity required in the bond market. Suppose that a bond paying a 10% coupon rate is purchased three years before maturity to yield 8% compounded semiannually. The purchase price that provides this yield to maturity is $1052.42. The accounting view is that a period’s earned interest is the amount that gives the required rate of return on the bond investment. The interest payment after the first six months that would, by itself, provide the required rate of return (8% compounded semiannually) on the amount invested is 0.08 ϫ $1052.42 ϭ $42.10 2 The earned interest during the first six months from an accounting point of view is $42.10. The actual first coupon payment of $50 pays $50 Ϫ $42.10 ϭ $7.90 more than is necessary to provide the required rate of return for the first six months.7 The $7.90 is regarded as a refund of a portion of the original premium, leaving a net investment (called the bond’s book value) of $1052.42 Ϫ $7.90 ϭ $1044.52 This book value becomes the beginning investment for the next six months. You then apply the same line of reasoning to this amount in the second interval, and so on. Earned interest is always calculated on the book value of the bond after the previous coupon payment. For the interest rate, use the yield...

Words: 1917 - Pages: 8

Premium Essay

Taxation Memo

...10-1-2011 Research Problem 4 from Chapter 17 Relevant Facts: Herron, Inc company have gave all its employees a ham for Christmas. However, many employees do not eat ham. Therefore, instead of the ham, company has decided to give each employee a coupon for $35 that can be redeemed for food or cash between December 1 and January 31 of the following year. This company is asking you whether the coupons can be excluded from the employees’ gross income as a de minimis fringe benefit. Problem Identification 1. Whether we should include the $35 as a gross income to employees? 2. Is it exclude if the employee consumed in a subsidized eating facility operated by the employer. Should we include it if they don't cash it ? 3. Is $35 a small amount that will not be reasonable taking into account. Memo From : Ye Xi Weng To: Thomas.FranK Subject: De Minimi Benefit on Reimbursement Of Coupon Of $35 The purpose of this memorandum is to provide audit guidance to examiners regarding employers that reimburse their employees for the $35 coupon that is good thought December 1 – January 31 of the following year. “Code Sec.132(a)(4) provides a specific exclusion from gross income for de minimis fringe benefits. A de minimis fringe benefit is any property or service whose value is so small that accounting for it is unreasonable or administratively impracticable, taking into account the frequency with which similar fringe benefits are provided by the employer to its...

Words: 370 - Pages: 2

Premium Essay

Revenue Recognation

...Running head: REVENUE RECOGNITION Revenue Recognition Name: Institution: Course: Tutor: Date: Revenue Recognition Introduction In accounting for revenues an accountant must follow GAAPS guidelines on accounting for revenues. Joy fitness is currently faced with a problem of earning low revenue and wants to seek for a business loan. It is an important requirement for any business to submit all their financial transaction to the financial institutions before the loan is rewarded. Therefore, Joy Fitness must prepare the trading profit and loss account together with other necessary documents for financial institution to consider offering the loan. The amount of loan to be given depends on the amount of returns the company gets or the available assets for an institution to consider their capability to pay. the business owner ask the business accountant to recognize the revenue related to the membership dues, the revenue from the coupon books sold, and the machines that have been sold which is against GAAPS guidelines (Albrecht et al 2011). Violating the GAAP Principles of Revenue Recognition By recognizing the membership due as an income received the business owner will be making a mistake because the income from the fees is normally collected in advance. Also the membership can be refunded if the member cancels out the membership. Therefore the income from the membership fees should only be recognized by the business...

Words: 969 - Pages: 4

Premium Essay

Rev Rec Case’s effectiveness at teaching the material is invaluable to your classmates. How you can best accomplish your task is up to you but you should, at a minimum, include the following in your presentation: • An overall summary of the case facts; • An explanation of the key accounting issue(s); • An identification and discussion of the relevant sections of the FASB Accounting Standards Codification; • A demonstration as to how the relevant authoritative accounting literature was interpreted and used to address the facts in your case; • A discussion of the accounting conclusions reached; and • Any required journal entries In addition to the in-class informal presentations, your group is also responsible for preparing a memo which includes a summary of: • The case facts so that the reader knows the background and the substance of the accounting issues in your case; • The relevant and applicable authoritative accounting literature; • The conclusion(s) reached when applying that literature to the fact scenario in your case; • Any required journal entries This memo IS NOT to take the form of the accounting issue memorandum that you completed in your accounting research assignment. In effect, the memo should be written from the perspective of the company...

Words: 4489 - Pages: 18

Premium Essay


...Chapter 09 - Interest Rate Risk II Chapter Nine Interest Rate Risk II Chapter Outline Solutions for End-of-Chapter Questions and Problems 1. What is the difference between book value accounting and market value accounting? How do interest rate changes affect the value of bank assets and liabilities under the two methods? What is marking to market? Book value accounting reports assets and liabilities at the original issue values. Market value accounting reports assets and liabilities at their current market values. Current market values may be different from book values because they reflect current market conditions, such as current interest rates. FIs generally report their balance sheets using book value accounting methods. This is a problem if an asset or liability has to be liquidated immediately. If the asset or liability is held until maturity, then the reporting of book values does not pose a problem. For an FI, a major factor affecting asset and liability values is interest rate changes. If interest rates increase, the value of both loans (assets) and deposits and debt (liabilities) fall. If assets and liabilities are held until maturity, it does not affect the book valuation of the FI. However, if deposits or loans have to be refinanced, then market value accounting presents a better picture of the condition of the FI. The process by which changes in the economic value of assets and liabilities are accounted is called marking to market. The changes can be beneficial...

Words: 5086 - Pages: 21

Premium Essay

Cma Note

...Calculator: To clear register Sharp EL-738: Press 2nd F then mode (CA on top) Bond 1. Company acquired bond: Accrued coupon payments received = FMV x coupon rate x # of months received (months counted from last coupon payment, coupon payment date can be tell by bonds dated at date. Even though semi-annually, doesn’t mean it’s issued at June 30/Dec 31) * Journal entry: Dr. xxx investments ** Dr. Investment income Cr. Cash Continent liability pg284 Derecognize asset Diminishing balance Net book value of asset = value of asset x (1-rate of diminishing)*years have used (* represent power of) If you are required to determine the net book value of an asset at the end of the nth year, you can do so by using the following formula: Net Book Value at end of nth year = Original cost x (1- depreciation rate)n For example, the net book value at the end of the 10th year is: $200,000 (1 - .20)10 = $200,000(.8)10 = $21,474 Remember can only depreciate no more than the residual value Note that when assets are traded in, the market value of the asset traded in becomes the proceeds on disposal and not the trade-in value. The reason for this is that the trade-in value often reflects a discount on the purchase price of the new asset purchased, which should be recorded as such. Shareholder’s equity Revaluation Model Revaluation surplus – When Revaluation results in an increase in carrying...

Words: 668 - Pages: 3

Premium Essay


...Fitter Snackers has two sales divisions which are a wholesale division and a direct division. The company faces a serious problem with its information system because it’s not integrated, so it’s causing the functional departments to not communicate leading to serious problems to reach process efficiency. The company is more a functional process than being a business process. Because of this functional process, employees in the accounting department and Sales department are sharing their information based on paper printed. The consequences for sharing information on paper based leads to many data errors, credit data may not be updated after printout payment received or multiple orders places, leading to arithmetic errors or incorrect discount coupons, and faxed copy may not be legible. All these issues described before will lead for management to make incorrect decisions plus they will make more time to make decisions which will affect in a negative way their manufacturing and other departments. Other major problems for Fitter was the fact that there were inaccurate invoice payments even though customers paid the correct amount which will make accounting department to research the correct invoice and these leading for the production line to be behind schedule, and time consuming. As a manager for the solution for Fitter Snacker to overcome all these problems it has to take data directly from inquiry and quote that customer has approved to minimize errors. I will implement...

Words: 455 - Pages: 2

Premium Essay


...CHAPTER 5 COMPUTER FRAUD SUGGESTED ANSWERS TO DISCUSSION QUESTIONS 5.1 Do you agree that the most effective way to obtain adequate system security is to rely on the integrity of company employees? Why or why not? Does this seem ironic? What should a company do to ensure the integrity of its employees? The statement is ironic because employees represent both the greatest control strength and the greatest control weakness. Honest, skilled employees are the most effective fraud deterrent. However, when fraud occurs, it often involves an employee in a position of trust. As many as 90% of computer frauds are insider jobs by employees. Employers can do the following to maintain the integrity of their employees. (NOTE: Answers are introduced in this chapter and covered in more depth in Chapter 7)  Human Resource Policies. Implement human resource policies for hiring, compensating, evaluating, counseling, promoting, and discharging employees that send messages about the required level of ethical behavior and integrity  Hiring and Firing Practices: Effective hiring and firing practices include: o Screen potential employees using a thorough background checks and written tests that evaluate integrity. o o Remove fired employees from all sensitive jobs and deny them access to the computer system to avoid sabotage.  Managing Disgruntled Employees: Some employees who commit a fraud are disgruntled and they are seeking revenge or "justice" for some wrong...

Words: 8875 - Pages: 36

Premium Essay

Groupon Financial Restatements

...537 May 12, 2013 Jeffrey Collins Groupon has experienced some problems the buzz started around the anticipation of the company going public. Legalities surrounding expiration dates of coupons (Tribune Staff and News Services, 2012) and suspicions arising from use of an accounting method described as “Adjusted Consolidated Segment Operating Income” (Groupon, 2012), are just two problems facing the relatively new company. Financial misstatements have occurred with the company more than one time. Despite the effects this has had on their image in the business world, Groupon believes they have weathered the storm and created an invested customer base despite the hiccups they have faced along the way. In late September 2011, Groupon restated its 2010 revenue figures due to "an error in presentation" discovered by regulators (Groupon, 2011). The accounting method, referred to as “Adjusted Consolidated Segment Operating Income,” excludes marketing costs – a major portion of their expenses (Gustin, 2012). This is an example of an accounting principle that needed to be changed. Excluding the marketing costs artificially inflates the net income figures and paints Groupon in a much more positive light than is reality. “Groupon restated its revenue after the Securities and Exchange Commission challenged its methodology” (De la merced, 2012). In 2012, the coupon company was again charged with the duty of correcting their financial statements. This...

Words: 748 - Pages: 3

Premium Essay

Case Study

...Submitted by: Hanan Tariq, Mansoor Amin, Assad Hamid khan ID: F1F1MBAM0025-0022-0028 Section: MBA-A3 Course: Business Math Submitted To: PROF. Faizan Wajid SR# | Contents | Page# | 1 | Loan | 3 | 3 | Amortization | 4-5 | 4 | Amortization of Intangible Assets | 6-7 | 5 | Sinking Fund | 8-9 | 6 | Examples Problems | 9-12 | 7 | References | 13 | | | | | | | | | | | | | | | | | | | | | | Loan Definition Written or oral agreement for a temporary transfer of a property (usually cash) from its owner (the lender) to a borrower who promises to return it according to the terms of the agreement, usually with interest for its use. If the loan is repayable on the demand of the lender, it is called a demand loan. If repayable in equal monthly payments, it is an installment loan. If repayable in lump sum on the loan's maturity (expiration) date, it is a time loan. Banks further classify their loans into other categories such as consumer, commercial, and industrial loans, construction and mortgage loans, and secured and unsecured loans. A written promise to repay the loan is called a promissory note. Use loan in a sentence I really wanted a home because I saw other people living in nice homes but I am poor so I decided to apply for a loan. A loan may be able to provide you with the cash you need to buy your first, or even, second home. Leland was nervous about his upcoming meeting at the bank...

Words: 2590 - Pages: 11

Premium Essay

Hardrock Cafè Case Study

...customer ii. creativity of products/service (theme restaurant) iii. innovations iv. . new and changing marketing conditions v. new solutions according to customers’ preferences/customization vi. created a new product (pioneer of theme restaurants) vii. risk-oriented viii. measurement of performance and costs ix. on-going reengineering core business processes for greater effectiveness and efficiency x. higher prices (the customer doesn’t just pay for a product but also for a unique experience) xi. inspire competitors 2. What problems did Hardrock in its information management of three core business functions, namely: restaurant operations, merchandising, and financial management? How did this problem impact Hardrock’s ability to transact, manage and innovate? Business Functions: | Information Management Issue...

Words: 787 - Pages: 4

Premium Essay

FASB Accounting Standards 860: Repurchase-To-Maturity Agreements

...Zachary Brink Professor McComb 16 September 2014 The FASB has recently issued Accounting Standards Update Number 2014-11 regarding topic 860: repurchase-to-maturity transactions, repurchase financings, and disclosures. Previously these transactions were accounted for as a sale with a forward purchase agreement, which would remove the asset from the balance sheet of the transferor. These transactions will now be recorded as a secured borrowing. The reasoning for this is that repurchase-to-maturity agreements are very similar to the other types of repurchase agreements in that the transferor is still exposed to the risks involved and also receives the benefits associated with the asset being transferred. The risks involved are credit risk and market...

Words: 533 - Pages: 3

Premium Essay

Practice Field Exam

...Finance Practice Exam Student: ____________________________________________________________ _______________ 1. According to Generally Accepted Accounting Principles, costs are:  A. recorded as incurred. B. recorded when paid. C. matched with revenues. D. matched with production levels. E. expensed as management desires.   2. The financial ratio measured as total assets minus total equity, divided by total assets, is the:  A. total debt ratio. B. equity multiplier. C. debt-equity ratio. D. current ratio. E. times interest earned ratio.   3. Financial ratios that measure a firm's ability to pay its bills over the short run without undue stress are known as _____ ratios.  A. asset management B. long-term solvency C. short-term solvency D. profitability E. market value   4. What is the future value of the following cash flows at the end of year 3 if the interest rate is 7.25%? The cash flows occur at the end of each year.     A. $8,758.04 B. $8,806.39 C. $10,073.99 D. $10,314.00 E. $10,804.36   \ 5. The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.  A. net present value profiling B. operational ambiguity C. mutually exclusive investment decision D. issues of scale E. multiple rates of return   6. The Liberty Co. is considering two projects. Project A consists of building a wholesale book outlet on lot #169 of the Englewood Retail Center. Project B consists of building...

Words: 3072 - Pages: 13

Premium Essay

Fin 424

...Self-insurance, litigation, claims, and assessments, asset retirement obligations. Presentation and analysis. Questions 1, 2, 3, 4, 6, 8 7, 11 9, 10 12, 5 13, 14, 15 16 17, 18, 19, 20, 22 21, 23 24, 25 26, 27, 28 1, 2, 3 4 5 8, 9 6, 7 10, 11 13, 14 15 12 5, 6, 16 7, 8, 9, 16 13, 16 10, 11, 16 12, 15, 16 14 3, 4 10, 11, 13 5, 6, 7, 12, 14 8, 9, 12, 14 2, 10, 11, 13 9 6, 7 5, 6, 7 7, 8 Brief Exercises Exercises 1, 16 Problems 1, 2 Concepts for Analysis 1 2. 3. 4. 5. 6. 7. 8. 9. 10. 2, 16 3, 4 1, 2 1, 2 3, 4 2 11. 29, 30, 31 17, 18, 19 3 Copyright © 2010 John Wiley & Sons, Inc. Kieso, Intermediate Accounting, 13/e, Solutions Manual (For Instructor Use Only) 13-1 ASSIGNMENT CLASSIFICATION TABLE (BY LEARNING OBJECTIVE) Learning Objectives 1. 2. 3. 4. 5. Describe the nature, type, and valuation of current liabilities. Explain the classification issues of short-term debt expected to be refinanced. Identify types of employee-related liabilities. Identify the criteria used to account for and disclose gain and loss contingencies. Explain the accounting for different types of loss contingencies. Indicate how to present and analyze liabilities and contingencies. Brief Exercises 1, 2, 3, 4, 5, 6 4 7, 8, 9 10, 11, 12, 13, 14, 15 10, 11, 12, 13, 14, 15 Exercises 1, 2, 7 3, 4 5, 6, 8, 9 13 10, 11, 12, 13, 14, 15 16, 17, 18, 19 3, 4 7, 10, 11, 13 2, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 9...

Words: 19169 - Pages: 77

Premium Essay

Accounting Midsem

...acct 1511 notes Chapter 6 – Financial Reporting Principles, Accounting Standards and Auditing 6.2 Accounting Principles and the use of Accounting Information   Doing accounting takes expert knowledge, considerable experience and continuous attention to new problems and solutions. Concepts and principles are important, as they form logical structure that practising accountants use every day to consider problems to make recommendations GAAP (Generally Accepted Accounting Principles) applied differently for different entities Rules, standards and usual practices that companies are expected to follow when preparing financial statements Stock market crash of 1929 brought GAAP AASB (Aust Accounting Standards Board) IASB (International Accounting Standards Board) AASB uses IASB as foundation, but includes more details applicable to Aust environment SACS – Statement of Accounting concepts SAVS established for general concepts and principles to be used in preparing financial statements SAC 1 – Definition of a Reporting Entity SAC 2 – Objective of General Purpose Financial Reporting SAC 3 – Qualitative Characteristics of Financial Information SAC 4 – Definition and Recognition of the Elements of Financial Statements Now, SAC 3 and SAC 4 is replaced with “Framework for Preparation and Presentation of Financial Statements”              FYI: Difficulties that face accounting and managers by GAAP   Difference in company structures – e.g. ABC = not for profit, publicly...

Words: 3857 - Pages: 16