USA Help

[legendary92]

Please review the following and identify the appropriate accounting treatment

Great Mowers manufactures lawn mowers for sale to major hardware and home repair chains. Great Mowers sells these mowers to seven different hardware and home repair store chains. These sales contain a 90 day right of return, but Great Mowers has never received any mowers back since it started in 1983. In addition, Great Mowers guarantees to undertake an extensive $1,000,000 national advertising campaign to promote the high quality and dependability of the lawn mowers.

Be brief and simple

 

[legendary92]

I believe it may have something to do with amortizing the advertising costs, but I'm unsure

 

[bklynboy]

You dont amortize advertising costs but are expensed as incurred (unless its direct response which is not the case here). I think what the are looking for is whether the sales revenue recorded should be net of expected returns. The question is whether they should provision for returns given past experience that none have occurred. Usually the return provision is a function of past experience and considering none has happened, perhaps Great Mowers does not need to set up an allowance against the sale.