Question

In: Accounting

Which of the statements below describes how TIF accounts for sales of gift cards on its...

Which of the statements below describes how TIF accounts for sales of gift cards on its balance sheet and income statement? You may select more than one.

Select one or more:

a. Revenue is recognized when the gift card is sold

b. Revenue is recognized when merchandise is purchased using the gift card and delivered to the customer

c. The gift card liability is relieved when merchandise is purchased using the gift card and delivered to the customer

d. A gift card liability is established when the gift card is sold

e. All of these answers

f. Gift card liabilities are included in the line item “Merchandise credits and deferred revenue” on the balance sheet

Solutions

Expert Solution

Whenever a gift card is sold, the following entry is recorded -

Cash A/C dr.

To Gift Cards Outstanding A/C

( Revenue is recorded only when the merchandise is purchased by the customer using the gift card. )

When gift card is used for purchasing merchandise, then the following entry is recorded -

Gift Cards Outstanding A/C Dr.

To Sales Revenue A/C

(a) Revenue is recognised when the gift card is sold.

INCORRECT

Reason - because liability for Gift Cards Outstanding is generated when gift card is sold and no revenue is recognised.

(b) Revenue is recognised when merchandise is purchased using the gift card and delivered to the customer.

CORRECT

Reason - because the revenue can be recognised only when the gift card is used by the customer.

(c) the gift card liability is relieved when merchandise is purchased using the gift card and delivered to the customer.

CORRECT

Reason - because the liability Account is debited when merchandise is purchased using gift card.

(d) a gift card liability is established when the gift card is sold.

CORRECT

Reason- because a liability account is credited when the gift card is sold.

(f) Gift card liabilities are included in the line item "Merchandise credits and deferred revenue" on the balance sheet.

CORRECT

Reason - because the uncashed gift card liabilities are included in a deferred revenue account in the balance sheet.


Related Solutions

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...
Below describes a sales-type lease in which annual lease payments of $10,000 are payable at the...
Below describes a sales-type lease in which annual lease payments of $10,000 are payable at the beginning of each year. Below is a finance lease for the lessee. Lease term (years) : 4 years Asset’s useful life (years) : 7 years Lessor’s implicit rate (known by lessee) : 11% Guranteed residual value by lessee : - Unguaranteed residual value : $4,000 Purchase option after 3 years Purchase option, exercise price : $3,000 Purchase option, reasonably certain? : yes Complete the...
Q8. Which of the following statements accurately describes a monopolistically competitive firm? A) Its market is...
Q8. Which of the following statements accurately describes a monopolistically competitive firm? A) Its market is dominated by a small number of firms. B) It competes against a large number of firms selling slightly different products. C) It will try to blend in its product so it is indistinguishable from other firms’ products. Q9. Monopolistic competitors in the food industry, acting in their own self-interest, will often include a recyclable symbol on packaging used for their product as a means...
Which of the following statements describes a receiving report?
Which of the following statements describes a receiving report? A. It is a report showing that the goods have been received in good condition, as ordered. B. It is a statement from the supplier showing the goods purchased and the amount due. C. It is an order to purchase goods irom a supplier. D. It is a document authorizing a payment to a supplier.
31) Adaptation is different from the term acclimatization. Which of the statements below best describes what...
31) Adaptation is different from the term acclimatization. Which of the statements below best describes what acclimatization means? A) Adjustments made by the Laura, the mountain climber (whose ancestors did not evolve in high altitudes) can be passed on to her children. B) Laura, the Mountain climber (whose ancestors did not evolve in high altitudes) can adjust to the low oxygen pressure by producing a different hemoglobin which has a higher affinity to oxygen. C) Laura, the Mountain climber (whose...
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,...
Walmart’s 2020 annual report said the following about its gift card sales: “Customer purchases of gift...
Walmart’s 2020 annual report said the following about its gift card sales: “Customer purchases of gift cards are not recognized as sales until the card is redeemed and the customer purchases merchandise using the gift card.” When a customer redeems a previously purchased gift card, what impact does this transaction have on Walmart's financial statements? A. Deferred gift card revenue decreases and cash decreases B. Deferred gift card revenue increases and revenue decreases C. Deferred gift card revenue decreases and...
A. How do gift cards benefit retailers? Does the benefit depend upon whether the good is...
A. How do gift cards benefit retailers? Does the benefit depend upon whether the good is normal or inferior? B. How do gift cards benefit consumers?
Which of the following statements best describes an idaas implementation
Which of the following statements best describes an idaas implementation
Each of the four independent situations below describes a sales-type lease in which annual lease payments...
Each of the four independent situations below describes a sales-type lease in which annual lease payments of $15,500 are payable at the beginning of each year. Each is a finance lease for the lessee. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Situation 1 2 3 4 Lease term (years) 3 3 3 3 Asset’s useful life (years) 3 4 4 6...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT