The Green Monster Joe Dough Inc., a public company, is a manufacturer of lawn and garden and recreation machinery. The Company manufactures both large heavy-duty commercial equipment and smaller equipment for residential use. The Company has a large product line that includes tractors, lawn mowers, snow blowers, snowmobiles, all-terrain vehicles, hedgers, tillers, etc. The primary purchasers of their commercial products are golf courses and ski resorts. The Company sells 90- 95% of their products through authorized dealers. The majority of the dealers sell Joe Dough Inc.s products exclusively and the Company feels that the dealer network gives them a competitive advantage. The dealers are independently owned. Joe Dough Inc. recognizes revenue when deliveries are made to the dealer. The dealers pay for the products under normal business terms. There are various marketing efforts that are performed in conjunction with the dealers. The majority of these marketing efforts are through sales incentives or rebates. Joe Dough Inc. reimburses their dealers for all rebates and sales incentives. Joe Dough Inc. currently only records an estimated rebate liability for product that has already been sold to their dealer network. This policy has been disclosed in the financial statements and the SEC has approved this treatment. One of the Companys most successful products over the past several years has been the LT-22, or the Green Monster. The Green Monster is a tractor/lawn mower that can be equipped with a mulcher, snow blower, tiller and various other accessories. The Green Monster was sold from 2003 to 2013 and was considered the industry leader. Over the years, there have been several accidents involving the Green Monster. The accidents have recently caught the attention of the media and there have been several stories reporting a potential design flaw. The Company claims that the equipment is as safe or safer than their competitors, and they feel that they have the industry statistics to support their claim. However, a large class action lawsuit has recently been filed against Joe Dough Inc. The lawsuit claims that there is a design flaw that makes the Green Monsters mower unsafe to operate and that Joe Dough Inc. needs to either recall all Green Monsters and fix the flaw or provide compensation to the plaintiffs. Joe Dough Inc. is very confident that they will win their case; however they do not like the negative publicity associated with the lawsuit and are afraid that the case could seriously affect their customer loyalty. Therefore, Joe Dough Inc. has proposed a type of settlement or goodwill gesture that will allow Joe Dough Inc. to continue to maintain customer loyalty without having the cash outlay of total recall. Joe Dough Inc. is aware of a recent business trend in which companies have been settling lawsuits with coupons or certificates good for discounts on future purchases. This strategy is attractive because the company could continue to assert that there are no past or present safety problems associated with the product. Therefore, this would simply be a strategy to maintain customer loyalty in light of their recent bad press. Under the proposed settlement, any current owner of a Green Monster will receive a certificate for $200 off the purchase of any Joe Dough Inc. product within the next three years. The certificate is similar to the current rebates and sales incentives offered by Joe Dough Inc. Joe Dough Inc. would also agree to pay the legal costs for all parties associated with the settlement. The legal costs are expected to be significant. Management also believes that the Companys competitors would honor these certificates at their dealerships. The Company believes that the competition will match any of their rebates or sales incentive programs. Joe Dough Inc. would like to account for the certificates as a sales incentive or rebate and record as a reduction of gross profit as the tractors are sold and the certificates are redeemed. Their justification for this accounting is that they have not admitted fault; the program is similar to all of their other sales incentives and they expect the competition to match the program. Joe Dough Inc. has been expensing their legal costs as they are incurred and has accrued the costs of the plaintiffs legal expenses as they are reasonably estimable and with the proposed settlement it is probable that Joe Dough Inc. will have to bear these costs. Required: Is it appropriate to account for the certificates as a sales incentive and match the cost associated with the certificates with the future revenue stream or should the cost of the incentive be expensed immediately as a legal settlement and recognized as a liability? You must argue both alternatives VIGOROUSLY. Make sure to base your arguments on both the accounting literature (FASB codification), the case facts and relevant business considerations. After vigorously arguing both alternatives, state which alternative you believe to be preferable and explain why. Also, make sure that you explain how the accounting would work. Lastly, it is safe to assume that the use of the certificates would not result in any of the products being sold at a loss.