Question

P18.8 (LO 2, 3) (Time Value, Gift Cards, Discounts) Presented below are two independent revenue arrangements for Colbert Company.

Instructions
Respond to the requirements related to each revenue arrangement.

Colbert sells 20 nonrefundable $100 gift cards for 3D printer paper on March 1, 2020. The paper has a standalone selling price of $100 (cost $80). The gift cards expiration date is June 30, 2020. Colbert estimates that customers will not redeem 10% of these gift cards. The pattern of redemption is as follows.

Redemption Total
March 31
50%
April 30
80%
June 30
85%
Prepare the 2020 journal entries related to the gift cards at March 1, March 31, April 30, and June 30.

Answer 1

Initial recognition of received amount of gift card to be considered as deferred revenue as Gift Card Liability.
Revenue shall be recognised once card shall be redem. It is also to be noted that breakage (expired) amount at each stage
of redemption shall be 10 %.
		$	$
Revenue Recongnition on March 31 to be :
Basic	(20*100)*50%	1000
Breakage	(1000/90*10)	111	1,111
Revenue Recongnition on April 30 to be :
Basic	(20*100)*(80%-50%)	600
Breakage	(600/90*10)	67	667
Revenue Recongnition on June 30 to be :
Basic	(20*100)*(85%-80%)	100
Breakage	(100/90*10)	11
Breakage (Remaining)	((20*100)-1111-667-100-11)	111	222
			2,000
Journal Entry
		$	$
01 March 2001	Cash A/c …………………………………Dr	2000
	To Gift Card Liability		2000
31 March 2001	Gift Card Liability A/c ……………Dr	1,111
	To Revenue A/c		1,111
30 April 2001	Gift Card Liability A/c ……………Dr	667
	To Revenue A/c		667
30 June 2001	Gift Card Liability A/c ……………Dr	222
	To Revenue A/c		222
* Gift card liability (20*100)= $ 2,000