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)
Chen Chongxiao Sweta Shah Xiaoyun zhang
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 …show more content…
As this case points out, CCPC did not issue coupons before. However, it had the historical coupon redemption rate of 1.5 percent on other products expired within 6 months. The new redemption period prolongs to one year, which will lead to a higher redemption rate. As such, the 2 percent redemption rate CCPC anticipated would be reasonable and reliable.
Requirement 5: This matter should be discussed under two circumstances as follows:
a. If CCPC cannot support the 2% redemption rate to be reasonable and reliable, no matter what the expected redemption rate is (2% or 2.5%), CCPC should recognize the maximum potential amount of $1million as we discussed in requirement 4.
b. On the other hand, if the 2% redemption rate were justified, CCPC would originally recognize $20,000. CCPS should consider the increase of redemption rate as a change in accounting estimate. Because according to FASB Codification 605-50-25-12, changes in the estimated amount of cash rebates or refunds and retroactive changes by a vendor to a previous offer (an increase or a decrease in the rebate amount that is applied retroactively) are changes in estimate that shall be recognized using a cumulative catch-up adjustment. That is, the customer would adjust the cumulative balance of its rebate recognized to the revised cumulative estimate immediately. Therefore, the 0.5% difference (2.5%-2%) which is $5000 (500,000*0.5%*2) that should