Question

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

Answer 1

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.