Question

Circuit Town commenced a gift card program in January 2021 and sold $10,550 of gift cards in January, $17,800 in February, and $17,200 in March 2021 before discontinuing further gift card sales. During 2021, gift card redemptions were $6,650 for the January gift cards sold, $4,800 for the February cards, and $4,200 for the March cards. CircuitTown considers gift cards to be "broken" (not redeemable) 10 months after sale. Required: 1. How much revenue will Circuit Town 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? Complete this question by entering your answers in the tabs below. Reg 2 Req 1 and 3 and 4 Prepare journal entries to record the sale of January gift cards, redemption of gift cards (ignore sales tax), and breakage (expiration) of gift cards. (If no entry is required for transaction/event, select "No journal entry required" in the first account field.) View transaction list

Answer 1

Solution 1:

The entire $10550 gift card sold in January will be recognized as revenue during 2021. $6,650 because of gift card redemption and $4,200 because of gift card breakage.

Solution 2:

Journal Entries - Circuit Town
Event	Particulars	Debit	Credit
1	Cash Dr	$10,550.00
	To Unearned Gift Card Revenue		$10,550.00
	(To record sale of gift card)
2	Unearned Gift Card revenue Dr	$6,650.00
	To Revenue - Gift Cards		$6,650.00
	(To record gift card redemption)
3	Unearned Gift Card revenue Dr	$4,200.00
	To Revenue - Gift Cards		$4,200.00
	(To record gift card breakage)

Solution 3:

Of the $17,200 gift card sold in March, $4,200 will be recognized as revenue because of gift card redemption. The remaining $13,000 of sales are not recognized as revenue in 2021 because gift cards sold in March of 2021 won't start expiring until January 2022.

Solution 4:

The only liability at December 31, 2021 would be the $13,000 of unexpired March gift cards.

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