Question

CircuitTown commenced a gift card program in January 2021 and sold $12,200 of gift cards in January, $16,400 in February, and $20,400 in March 2021 before discontinuing further gift card sales. During 2021, gift card redemptions were $6,500 for the January gift cards sold, $5,400 for the February cards, and $6,900 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, 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?

Answer 1

Ans:

1. Revenue recognized in 2016 with respect to January Gift card sales= $12,200

Out of this 6500 were used as card Redemption and $ 5,700 were used as gift card Breakage

2. Journal Entries.

S.no	Account title and explanation	Debit(S)	Credit($)
1	Cash	12,200
	Deferred Revenue		12,200
	( to record gift card sales)
2.	Deferred Revenue	$6,500
	Sales Revenue		$6,500
	( to record January gift card redemption)
3	Deferred Revenue	$5,700
	Revenue- Gift cards		$5,700
	( to record expiration of January gift cards)

3. Only redemption will be taken into account as the March cards would expire only in January 2017.It is assumed that gift card sales occur half way through each month on average.6,900

4. Liability for deferred revenue = 20,400-6,900

= $ 13,500