Question

The following facts relate to gift cards sold by Sunbru Coffee Company during 2018. Sunbru’s fiscal year ends on December 31. (a.) In October 2018, sold $2,100 of gift cards, and redeemed $410 of those gift cards. (b.) In November 2018, sold $3,100 of gift cards, and redeemed $1,310 of October gift cards and $610 of November gift cards. (c.) In December 2018, sold $2,100 of gift cards, and redeemed $110 of October gift cards, $1,100 of November gift cards, and $310 of December gift cards. (d.) Sunbru views a gift card to be “broken” (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30. Required: 1. Prepare all journal entries appropriate to be recorded only during the month of December 2018 relevant to gift card sales, gift card redemptions, and gift card breakage. 2. Determine the balance of the deferred revenue liability to be reported in the December 31, 2018, balance sheet. Prepare the relevant T-account information to support your answer.

Answer 1

Ques 1

December gift card sales:
Cash	2,100
Liability—unearned gift card revenue		2,100
December redemption of gift cards:
Liability—unearned gift card revenue	1,520
Gift card revenue		2,600
110+1100+310
Gift card breakage recorded in December:
Liability—unearned gift card revenue	270
Gift card revenue
2100-410-1310-110		270

Ques 2

answer:2100

t-account

Deferred gift card revenue
oct redemptions	410	2100	october sales
nov redemption	1920	3100	nov sales
1310+610
dec redemption	2,600	2100	dec sales
december broken	270
		2100	end balance