Essay on Trademark Inc. 03-05
Re: Case 03 05, Accounting Issues
Background
Trademark, Inc., a public and growing global corporation, creates, assembles, and disburses their
products through four main divisions of their corporation: Greeting Cards and Stationery, Calendars,
Party Goods, and Specialty Gifts. Their core business comes from their customers in drug stores and
supermarket chains. In the early to mid 1990 s, Trademark saw significant growth in response to their
IPO issuance in 1992, however, since 1994, they have seen a flat and ultimate declining growth in
their product.
Issue
Recently, Trademark, Inc. has realized an overstatement in their return of damage goods and are
considering halting their previously acceptable return of slow moving ... Show more content on
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Also, according to 605 15 25 1 F, it is acceptable that future amounts be reasonable estimated.
Secondly, the difference between actual and estimated returns is less than 5%, (FASB ASC 250 10 S99
1) therefore, according to GAAP the difference is immaterial and the accounting procedure is
permissible. Lastly, the estimated cost of keeping detailed records for each product line of each
division may outweigh the benefits of accurate rates of returns. Option #2: Trademark, Inc., after
responding to complaints and the high rate of returns, relationships with customers increased and they
received less returns. Trademark, Inc. s ability to make a reasonable estimate of future returns was
impaired because they altered their shipping method, but did not change how they estimated for the
return of damaged goods. According to FASB ASC 605 15 25 3, the ability to make a reasonable
estimate of future returns may be impaired if there have been changes in the selling entities policies or
relationships with customers. Since Nancy has created a reasonable and acceptable estimate factoring
in the impact of new packaging materials, Trademark, Inc. should follow Nancy s guidance.
Furthermore, according to 605 15 45 1, for any sales made with a right of return in which the criteria
in paragraph 605 15 25 1 are met revenue and cost of sales reported in the income statement shall be
reduced to reflect estimated returns. The difference between management s estimate
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