Gilmatt Company developed a new product that it planned to sell directly to customers and to promote heavily because of “stiff’ competition in the marketplace. Its marketing department did extensive market surveys and developed a marketing plan for this product. The plan called for a series of television commercials and magazine advertisements. The television commercials aired for 2 months (September and October) in 2016 to (a) advertise the product and (b) indicate to viewers that “$5-off* coupons would be appearing in forthcoming magazine advertisements. The magazine advertisements appeared evenly' over a 3-month period from November 2016 through January' 2017 and further promoted the product, as well as included the coded $5 off coupons (which expired at the end of February' 2017). Gilmatt expected 20,000 coupons to be redeemed. During November and December 2016, Gilmatt sold 2,000 units of the new product at the $50 regular price and 8,000 units at the $45 coded-coupon price. In Januarv 2017, the company' sold another 3,000 units at $50 each and 7,000 units at $45 each. It expects customers to redeem another 5,000 coupons before the coupons expire. It is now late January' 2017, and Gilmatt is pre paring its 2016 annual report.
The marketing department has prepared the following schedule of its 2016 costs related to the advertising and promotion of the new product supervisor's salary', $10,000; payroll of employees working on magazine advertising copy, $40,000; depreciation, $7,5 00; cost of television commercials (independently produced), $180,000; cost of magazine space for advertisements, $100,000; and cost of television airtime, $300,000.
Research the related generally' accepted accounting principles and indicate how Gilmatt should report the costs of marketing the new product and the related sales revenues on its 2016 financial statements. Cite your reference and applicable paragraph numbers.