Question

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14) Tokyo Department store sells gift certificates redeemable only when merchandise is purchased. These gift certificates have an expiration date of two years after issuance date since the said gift certificates were related to promo. Upon redemption or expiration, Tokyo recognizes the uneared revenue as realized. Information for the current year is as follows: Unearned revenue from gift certificate, 1/1/19 650,000 Gift certificates redeemed 1,250,000 Gift certificates sold 1,950,000 Expired gift certificates 150,000 Gross profit rate based on sales 20% How much is the unearned revenue from the gift certificate on December 31, 2019? A. 1,350,000 C. 2,600,000 B. 1,200,000 D. 2,450,000

Answer 1

Unearned revenue from gift cards as on 1/1/19 - 650000

When gift certificates are redeemed or expired, it becomes realized revenue. Hence, both of them should be reduced from unearned revenue.

Similarly, when gift certificates are sold, it increases the unearned revenue. it must be added with unearned revenue.

So, unearned revenue from gift certificates on 31st December 2019 = 650000-1250000+1950000-150000 = 1200000.

Answer is option B. 1,200,000.