Question;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?
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