You have been asked to direct Griffin Company in the proper accounting treatment for two of its new customer relations plans.
Griffin has offered for sale a complete computer system for $1,400 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. Griffin sold 720 systems during 2012 with sales being made evenly throughout the year (approximately 60 systems per month). The company estimates that about 25% of the customers will exercise the warranty and that the cost to the company will be about $370 per system. Only $2,400 of warranty costs were incurred in 2012.
To stimulate sales of computer games, Griffin is placing a $10 coupon in each game. Four coupons are redeemable for a special game available only by redeeming the coupons. In 2012, Griffin purchased 40,000 of the special games at $15.00 each from its manufacturer. Griffin sold 440,000 games with coupons at an average price of $37.50 per game. Griffin estimates that 40% of the coupons issued will be redeemed. During 2012, 120,000 coupons are presented for redemption.
What journal entries will Griffin need to make in 2012 relative to these plans?
What amounts, if any, will be disclosed in Griffin’s balance sheet under these plans?