Question

In: Accounting

Bull’sEye sells gift cards redeemable for Bull’sEye products either in-store or online. During 2021, Bull’sEye sold...

Bull’sEye sells gift cards redeemable for Bull’sEye products either in-store or online. During 2021, Bull’sEye sold $2,050,000 of gift cards, and $1,850,000 of the gift cards were redeemed for products. As of December 31, 2021, $151,000 of the remaining gift cards had passed the date at which Bull’sEye concludes that the cards will never be redeemed. How much gift card revenue should Bull’sEye recognize in 2021?

Multiple Choice

  • $2,001,000

  • $1,899,000

  • $2,050,000

  • $1,850,000

Solutions

Expert Solution

The correct answer is option(a). $2,001,000.

EXPLANATION.

The securities and Exchange commission allows the recognisation of Gift card revenue as income if it can be reasonably said that these gift cards cannot be redeemed.

It means if there is the reasonable estimate that the certain value of Gift cards that will not be redeemed or gift cards that never be redeemed can be recognised from gift card revenue.

AS PER GUIDANCE TO ACCOUNTING STANDARDS

(REVENUE FROM CONTRACTS WITH CUSTOMER).

The sale of gift cards to customers is creates a deffered revenue, since customer pays in adavance for the future delivery of goods (delivery of goods at future date). So the revenue should be recognised under two conditions

1). Goods or services are delivered (that is gift cards that are redeemed),

2).It is very remote that gift cards will be redeemed (that is gift cards can never be redeemed)

So, entire amount of gift cards that will never be redeemed is recognised as revenue along with all the gift cards that are redeemed.

So the amount of Revenue from gift cards to be recognised in 2021

=Gift cards redeemed + gift cards that never be redeemed

=$1,850,000 + $ 151,000

=$2,001,000.

Hope you understood the solution. If you have any doubt please leave your doubt in the comment section so that I can clarify your doubt.


Related Solutions

On October 1, 2021, a company sells $800 of gift cards to customers. The gift cards...
On October 1, 2021, a company sells $800 of gift cards to customers. The gift cards expire one year from the date of sale. By October 1, 2022, $750 of the gift cards have been redeemed and the sales recorded at the time of redemption. What entry, if any, should the company record on October 1, 2022? A) Debit Sales Revenue, $50; credit Cash, $50. B) Debit Cash, $750; credit Sales Revenue, $750. C) Debit Deferred Revenue, $50; credit Sales...
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...
Accounting for Gift Cards Assume Ikeo Inc. sold $160,000 of gift cards during the last two...
Accounting for Gift Cards Assume Ikeo Inc. sold $160,000 of gift cards during the last two weeks of December 2020. No gift cards were redeemed in 2020, while $144,000 of the gift cards were redeemed for store purchases during 2021. On December 31, 2021, Ikeo Inc. calculates the remaining balance of unredeemed gift cards of $16,000 ($160,000 less $144,000). Based on previous experiences, Ikeo estimates gift card breakage to be 5% of total gift card sales. Ikeo uses the proportional...
An online backpack store sells many products that are popular with elementary school children. The store...
An online backpack store sells many products that are popular with elementary school children. The store knows some children under 10 subscribe to the store's coupon service. Is the store subject to the Children's Online Privacy Act?
CircuitTown commenced a gift card program in January 2018 and sold $13,900 of gift cards in...
CircuitTown commenced a gift card program in January 2018 and sold $13,900 of gift cards in January, $18,700 in February, and $20,450 in March of 2018 before discontinuing further gift card sales. During 2018, gift card redemptions were $8,500 for the January gift cards sold, $5,100 for the February cards, and $6,050 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...
CircuitTown commenced a gift card program in January 2018 and sold $10,000 of gift cards in...
CircuitTown commenced a gift card program in January 2018 and sold $10,000 of gift cards in January, $15,000 in February, and $16,000 in March of 2018 before discontinuing further gift card sales. During 2018, gift card redemptions were $6,000 for the January gift cards sold, $4,500 for the February cards, and $4,000 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...
Apple Inc. is the number one online music retailer through its iTunes music store. Apple sells iTunes gift cards in $15, $25, and $50 increments
Apple Inc. is the number one online music retailer through its iTunes music store. Apple sells iTunes gift cards in $15, $25, and $50 increments. Assume Apple sells $21 million in iTunes gift cards in November, and customers redeem $14 million of the gift cards in December. Required:1. Record the advance collection of $21 million for iTunes gift cards in November.2. Record the revenue recognized when $14 million in gift cards is redeemed in December.3. What is the ending balance...
The following facts relate to gift cards sold by Sunbru Coffee Company during 2018. Sunbru’s fiscal...
The following facts relate to gift cards sold by Sunbru Coffee Company during 2018. Sunbru’s fiscal year ends on December 31. (a.) In October 2018, sold $3,500 of gift cards, and redeemed $550 of those gift cards. (b.) In November 2018, sold $4,500 of gift cards, and redeemed $1,450 of October gift cards and $750 of November gift cards. (c.) In December 2018, sold $3,500 of gift cards, and redeemed $250 of October gift cards, $2,500 of November gift cards,...
OK Corporation sells gift cards in various denominations. The company likes to sell these cards because...
OK Corporation sells gift cards in various denominations. The company likes to sell these cards because cash is collected immediately, but a certain percentage will never be redeemed for merchandise. On December 1, Year One, OK reported a balance in unearned revenue of $728,000 from the sale of gift cards. a. During December, OK sold an additional $578,000 in gift cards. Prepare this journal entry. b. During December, gift cards totaling $327,000 were redeemed to purchase inventory that had originally...
Problem 7.6A. Unmatched Elegance Gift Shop sells cards, supplies, and various holiday greeting cards. Sales to...
Problem 7.6A. Unmatched Elegance Gift Shop sells cards, supplies, and various holiday greeting cards. Sales to retail customers are subject to an 8 percent sales tax. The firm sells it merchandise for cash; to customers using bank credit cards, such as MasterCard and VISA; and to customers using American Express. The bank credit cards charge a 2 percent fee. American Express charges a 3 percent fee. Unmatched Elegance Gift Shop also grants trade discounts to certain wholesale customers who place...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT