[vodrldnr]

Regal Department store sells gift certificates, redeemable for store merchandise, that expire one year after their issuance. Regal has the following information pertaining to its gift certificates sales and redemptions:

Unredeemed at 12/31/09 – $75,000
2010 Sales – $250,000
2010 Redemptions for Prior Year Sales – $25,000
2010 Redemptions of Current Year Sales – $175,000

Regal’s experience indicates that 10% of gift certificates sold will not be redeemed. In its December 31, 2010 Balance sheet, what amount should Regal report as unearned revenue?

The solution says the answer is $50,000. The explanation is that all of the 2009 unearned revenue is redeemed or expired. Then you have the ($250,000 2010 sales) minus ($175,000 2010 redemptions) minus (10% * $250,000) = $50,000

my question is ..
how the 10% of unredeemed gift certification will be recorded …???

[sancasuki]

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[samer]

@ sale:

dr. Cash 250,000
Cr. revenue 25,000 (since 10% is estimated not to be redeemed)
Cr. Unearned revenue 225,000

@ redemption (175K)

Dr. Unearned revenue 175,000
Cr Revenue 175,000

so you end-up with 50,000 balance in the unearned revenue

[vodrldnr]

thank you guys. I wanted to check and see how the gift card accounting revenue is recognize. it seems like the J/E reflect revenue for this case is only recognized when expired or redeemed. thank you so much !

[Author]

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