CircuitTown commenced a gift card program in January 2018 and sold $11,150 of gi
ID: 2523222 • Letter: C
Question
CircuitTown commenced a gift card program in January 2018 and sold $11,150 of gift cards in January, $19,950 in February, and $17,600 in March of 2018 before discontinuing further gift card sales. During 2018, gift card redemptions were $6,900 for the January gift cards sold, $6,950 for the February cards, and $4,550 for the March cards. CircuitTown considers gift cards to be "broken" (not redeemable) 10 months after sale. Required: 1. How much revenue will CircuitTown recognize with respect to January gift card sales during 2018? 2. Prepare journal entries to record the sale of January gift cards, redemption of gift cards (ignore sales tax), and breakage (expiration) of gift cards 3. How much revenue will CircuitTown recognize with respect to March gift card sales during 2018? 4. What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2018?Explanation / Answer
1. 11,150
The entire revenue of 11,150 will be recognized in 2018 because of redemptions of 6,900, 4,250because of gift card breakage.
2.
3. Out of total 17,600 sold in March, 4,550 will be recognized as revenue because of gift card redemption.
The remaining 13,050 of sales are not recognized as revenue in 2018 because gift cards sold in March of 2018 won’t start expiring until January 2019.
4. The total Liability of 13,050 would be deferred revenue as on 31st Dec 2018 because of gift card expiring on Jan 2019.
Debit Credit Bank 11,150.00 To Gift Card Liability 11,150.00 (Being Gift Card Sold) Gift Card Liability 6,900.00 To Sales 6900 (Being Redemption of Gift Card Recorded) Gift Card Liability 4,250.00 To Revenue 4,250.00 (Being Gift Card Expired recorded as revenue)