Johnson and Johnson (J&J) is a public company with a calendar year end

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should have your name and Accounting 401 as the cover sheet.

1)
Times New Roman font, 12
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2)
Double spacing.
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4)
3 pages of text.
5)
References to the
standards must be complete in order to be graded as correct.
6)
Grammatically correct

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 literature for your conclusions. Be
sure to cite the relevant components of the Condification
in your discussions. Citations are not
required for journal entries.
1. What are the accounting
issue(s) and the relevant components of the authoritative literature?
2. When should J&J
recognize the effects of the Shiny Teeth coupon drop on its financial
statements?
3. What is the dollar amount
of the effect of Shiny Teeth coupon drop on J&J’s financial statements?
4. What would constitute
“sufficient evidence” to support J&J’s expected redemption rate of 2
percent?
5. What are the accounting
implications if J&J’s estimated redemption rate changes to 1.5 percent at a
later point in time?
6. How should the effects of
the Shiny Teeth coupon drop be reflected in the income statement?
7. What are the necessary
journal entries?