Ashley Stores, Inc., sells gift cards for use at its stores. The following data pertains to...

Ashley Stores, Inc., sells gift cards for use at its stores. The following data pertains to 2019, 2020, and 2021, the company’s first three years of operation: 2019 2020 2021 Gift card sales $ 30,000 $ 45,000 $ 50,000 Gift card usage 12,000 28,000 37,000 As of December 31, 2019, Ashley estimates that 1.0% of its gift cards will never be redeemed. As of December 31, 2020, Ashley has revised its estimate, and now believes 1.5% of all gift cards, including those issued in 2019, will not be redeemed. As of December 31, 2021, its estimate remains at 1.5%. Ashley is not required to remit unused gift card amounts to the state. Required: What amount of breakage revenue should Ashley recognize in 2019, 2020, and 2021? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.) What amount of gift card liability should be reported on Ashley’s balance sheet at December 31, 2019, 2020, and 2021?

Expert Solution

Particulars	2019	2020	2021
Gift card sales	30,000	45,000	50,000

Less:
1% gift cards never redeemed	300
1.5% gift cards never redeemed		675	750
0.5% 2019 gift cards never redeemed		150
Redemption during the year	12,000	28,000	37,000


Net liability of the year	17,700	16,175	12,250
Add opening balance	0	17,700	33,875

Gift card liability - Balance sheet	17,700	33,875	46,125

jeff jeffy answered 2 years ago

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