Reference no: EM132701130

Question - NEW YORK (Kyodo) Mitsubishi Motors Corp. is offering a year's worth of free gasoline to anyone in the United States who buys one of its new 2015 models.

Under the campaign, launched Sept. 23, MMC will give buyers prepaid debit cards they can use to buy a year's worth of gas at most gas stations.

The cards are worth between $1,500 and $2,500, depending on the car.

The campaign, which is good until the end of October, is part of MMC's efforts to clear out inventory before it rolls out its 2016 models this autumn, MMC officials said.

One official quoted President Osamu Masuko as saying the campaign "costs less than the discounts" it has been offering amid the intensifying discounting battles being waged in the U.S.

Auto industry analysts are watching closely to see whether the campaign will help Mitsubishi Motors, which has been hit hard by vehicle defect coverup scandals, recover lost ground.

Gas prices have risen about 50 percent since early this year, thanks to two devastating hurricanes that lashed the U.S. Gulf Coast and exacerbated already soaring crude oil prices.

Fuel-efficient Japanese cars are selling well in this environment, and the timing of this campaign is thus favorable, the officials said.

Required -

a. Identify and discuss the key underlying accounting principle(s) inherent in the above article.

b. Assume that a vehicle which cost MMC $27,000 to manufacture is sold for $30,000 & a gas card with a $2,000 value is given to the customer. Prepare the journal entry(ies) that the company's accounting department would likely record for the above. Be sure to explain your reasoning for the journal entry(ies) you prepare.

c. As a user of the company's financial statements, would you be concerned about MMC's quality of earnings given what has been reported in the above article? Defend your answer.