Situation Gilmatt Company developed a new product that it planned to sell directly to customers and to promote heavily because of “stiff” competition in the market place. 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 two months (September and October) in 2007 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 three month period from November 2007 through January 2008 and further promoted the product, as well as included the coded $5-off coupons (which expired at the end of February 2008.) Gilmatt expected 20,000 coupons to be redeemed. During November and December 2007, 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 January 2008, the company sold another 3,000 units at $50 each and 7,000units at $45 each. It expects customers to redeem another 5,000 coupons before the coupons expire. It is now late January 2008 and the company is preparing its 2007 annual report.
The marketing department has prepared the following schedule of its 2007 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, $7,500; cost of television commercials (independently produced), $180,000; cost of magazine space for advertisements, $100,000; cost of television airtime, $300,000.

Direction
Research the related generally accepted accounting principles and indicate how Gilmatt Company should report the costs of marketing the new product and the related sales revenues on its 2007 financial statements. Cite your reference and applicable paragraph numbers.