On March 31, 2021, a company sells $1,200 of gift cards to customers. The gift cards expire one year from the date of sale. What entry should the company record on March 31, 2021?
A) Debit Cash, $1,200 credit Sales Revenue, $1,200.
B) Debit Sales Revenue, $1,200 credit Cash, $1,200.
C) Debit Cash, $1,200 credit Deferred Revenue, $1,200.
D) No journal entry is necessary.
Answer: C
Gift card breakage refers to:
A) The inability of the company to satisfy its obligation to customers that have previously purchased gift cards.
B) The point in time when gift cards expire or when the likelihood of redemption by customers is viewed as remote.
C) The time at which customers redeem their previously purchased gift cards for goods and services.
D) Companies selling gift cards to customers on account and then those customers failing to pay the amount owed.
Answer: B
When a company delivers a product or service for which a customer has previously paid, the company records the following:
A) A debit to a revenue account and a credit to a liability account.
B) A debit to a revenue account and a credit to an asset account.
C) A debit to an asset account and a credit to a revenue account.
D) A debit to a liability account and a credit to a revenue account.
Answer: D
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