Question

During December 2020, Soft Skin Ltd. sells $27,500 of gift cards to customers. From reliable past experience, management estimates that 6% of the gift cards sold will not be redeemed by customers. In January 2021, $2,300 of these cards is redeemed for merchandise with a cost of $1,725. In February 2021, a further $9,800 of these cards is redeemed for merchandise with a cost of $7,840. The company uses a perpetual inventory system and has a February 28 year end. Prepare the journal entry needed for December 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit December, 2020 SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare the journal entry needed for the January 2021 redemptions. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.) Debit Credit Date Account Titles and Explanation January, 2021 (To record sales) January, 2021 (To record cost of goods sold)

Answer 1

1) Journal Entry :-

Date	Particulars	Debit($)	Credit($)
Dec, 2020	Cash A/c	27500
	Contract Asset/Liability A/c		27500
	(Being Record Sell of Gift Card)

2) Journal Entries :-

Date	Particulars	Debit($)	Credit($)
Jan 2021	Contract Asset/Liability ($2300/(100%-6%))	2447
	Sales Revenue		2447
	(Being Record Redeem of Gift Card)
Jan 2021	Cost of Goods Sold	1725
	Inventory		1725
	(Being Record Cost of Goods Sold of Redeem of Gift Card)

3) Journal Entries :-

Date	Particulars	Debit($)	Credit($)
Feb 2021	Contract Asset/Liability ($9800/(100%-6%))	10426
	Sales Revenue		10426
	(Being Record Redeem of Gift Card)
Jan 2021	Cost of Goods Sold	7840
	Inventory		7840
	(Being Record Cost of Goods Sold of Redeem of Gift Card)

4) SEP will show a balance of $14627 as a Current Liability for unredeemed Gift Card.

Sale Value	$27500
Less : Amount of Redeem of Gift Card
January	(2447)
February	(10426)
Gift Card Value Balance	14627