Assume Ikeo Inc. sold $80,000 of gift cards during the last two weeks of December 2020. No gift cards were redeemed in 2020, while $72,000 of the gift cards were redeemed for store purchases during 2021. On December 31, 2021, Ikeo Inc. calculates the remaining balance of unredeemed gift cards of $8,000 ($80,000 less $72,000). Based on previous experiences, Ikeo estimates gift card breakage to be 5% of total gift card sales. Ikeo uses the proportional method to recognize income on gift card breakage.  Required  a. Record the sale of gift cards in 2020.  b. Record the redemption of gift cards in 2021.  c. Record revenue in 2021 due to gift card breakage using the proportional method.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
Question

Accounting for Gift Cards

Assume Ikeo Inc. sold $80,000 of gift cards during the last two weeks of December 2020. No gift cards were redeemed in 2020, while $72,000 of the gift cards were redeemed for store purchases during 2021. On December 31, 2021, Ikeo Inc. calculates the remaining balance of unredeemed gift cards of $8,000 ($80,000 less $72,000). Based on previous experiences, Ikeo estimates gift card breakage to be 5% of total gift card sales. Ikeo uses the proportional method to recognize income on gift card breakage. 

Required 
a. Record the sale of gift cards in 2020. 
b. Record the redemption of gift cards in 2021. 
c. Record revenue in 2021 due to gift card breakage using the proportional method.

Note: Carry all decimals in calculations; round the final answer to the nearest dollar.
Note:  If a line in a journal entry isn't required for the transaction, select "N/A" as the account names and leave the Dr. and Cr. answers blank (zero).

 

 

  Account Name Dr. Cr.
a. Answer Answer Answer
  Answer Answer Answer
b. Answer Answer Answer
  Answer Answer Answer
c. Answer Answer Answer
  Answer Answer Answer
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 2 images

Blurred answer
Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question

Is there another type of account name for gift card liability?

Solution
Bartleby Expert
SEE SOLUTION
Knowledge Booster
Accounting for discounts
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education