Question

In: Accounting

CircuitTown commenced a gift card program in January 2021 and sold $11,900 of gift cards in...

CircuitTown commenced a gift card program in January 2021 and sold $11,900 of gift cards in January, $19,450 in February, and $20,850 in March 2021 before discontinuing further gift card sales. During 2021, gift card redemptions were $8,100 for the January gift cards sold, $4,600 for the February cards, and $6,100 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 2021?
2. Prepare journal entries to record the sale of January gift cards, the 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 2021?
4. What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2021?

How much revenue will CircuitTown recognize with respect to January gift card and March gift card sales during 2021? What liability for deferred revenue associated with gift card sales would CircuitTown show as of December 31, 2021?

1. Revenue recognized from January gift card sales
3. Revenue recognized from March gift card sales
4. Year-end deferred revenue liability

Solutions

Expert Solution

Required 1.

Revenue Recognized $11,900

Explanation:-

The entire $11,900 sold in January will be recognized as revenue during 2021. $8,100 because of gift card redemption and $3,800 because of gift card breakage.

Required 2.

Event General Journal Debit Credit
1 Cash $11,900
Liability- Unearned gift card revenue $11,900
(To record the sale of January gift card)
2 Liability- Unearned gift card revenue $8,100
Revenue- Gift cards $8,100
(To record the redemption of gift cards)
3. Liability- Unearned gift card revenue $3,800
Revenue- Gift Cards $3,800
(To record breakage of gift cards)

Required 3.

Revenue Recognized $6,100

Explanation:-

Only redemption of gift cards will be recognized as revenue because March card would expire only in January 2022.

Required 4.

Deferred Revenue $14,750

Explanation:-

The only Liabilities at 12/31/2021 would be $14,750 ($20,850 - $6,100) of unexpired march gift cards.

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