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The following information was taken directly from the footnotes to the financial statements of
Best Buy:
1. “We recognize revenue at the time the customer takes possession of the merchandise.”
2. “We sell gift cards to customers and initially establish an Unredeemed Gift Card Liability for
the cash value of the gift card.”
3. “Advertising costs are recorded as expenses the fi rst time the advertisement runs.”
4. “We compute
a. Discuss what is meant by each of the above footnote items.
b. As noted, Best Buy uses a Unredeemed Gift Card Liability account to record the sale of gift
cards. Assume that you purchase a $500 gift card from Best Buy as a birthday present for a
friend. Prepare the
card and (2) the use of the gift card by your friend to purchase a $500 television.
c. Discuss how the matching principle relates to Best Buy ’s treatment of advertising
expenditures.
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