Return of damaged goods

Allowance for Returns 600,000
Cost of Goods Sold 323,077 Sales Returns 923,077

There is a misstatement because Trademark has accrued too large of a reserve. ASC 450-20-25-2 governs setting up of a loss contingency account. Trademark has to correct an over projection of losses on returns and does so by reversing the reserve in the above entry. This misstatement is a projected misstatement due to an incorrect projection of returns.

Other Returns

Sales Returns 1,692,000 Allowance for Returns 1,099,800 Cost of Goods Sold 592,200

There is a misstatement due to discontinuing the use of a reserve. ASC 605-15-25-1 states that Trademark can recognize revenue on the particular type of contractual sales mentioned in the case, and therefore can set up a loss contingency (reserve) account as allowed by ASC 450-20-25-2. The above entry shows the formation of the reserve. This is a judgmental misstatement by misjudging whether accounting standards allowed a reserve under these circumstances.

Slotting Allowances

Advertising Expense 1,525,000 Capitalized Shelf Space 1,525,000

There is a misstatement because Trademark incorrectly capitalized these expenditures that should have been recorded as an expense as classified under ASC 720-35-25-1. This entry reverses the capitalization of an asset and correctly categorizes it as an expense. This is a judgmental misstatement. The company misjudged whether their expenditures were for an asset or an expense.

Sales at June 30

Sales 5,700,000 Accounts Rec. 5,700,000
Inventory 1,995,000 COGS 1,995,000

There is a misstatement because Trademark has recorded sales that should not be recorded in the current period under ASC 605-10-S99. $5.7 million of sales will have to be recorded in the following fiscal year, 2010. This entry