Reading & Interpreting Nordstrom\'s Notes-Revenue Recognition. The following exc
ID: 2488470 • Letter: R
Question
Reading & Interpreting Nordstrom's Notes-Revenue Recognition. The following excerpt is taken from Note 1 on page 42 of Nordstrom’s Form 10-K for the fiscal year ended January 28, 2012: NET SALES: We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns & excluding sales taxes. Revenue from our sales to customers shipped directly from our stores & our online & catalog sales includes shipping revenue, when applicable, & is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns & reduce sales & cost of sales accordingly. The following excerpt on page 44 is from the same note: GIFT CARDS: We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote.
1. Assume that you buy a gift card for a friend. Identify & analyze the transaction Nordstrom records at the time you buy the card. NOTE: there should be one answer for ACTIVITY, STATEMENT(S) & ACCOUNTS
Activity:
A. Operating
B. Investing
C. Financing
Statement(s):
A. Balance Sheet
B. Income Statement
C. Both
Accounts:
A. Cash Increase, Gift Card Liability Increase
B. Cash Increase, Gift Card Liability Decrease
C. Cash Decrease, Gift Card Liability Increase
D. Cash Decrease, Gift Card Liability Decrease
2. How does this entry affect the accounting equation? NOTE: If a financial statement item is not affected, select "No Entry" & leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Be sure to pick between Cash, Gift Card Liability or No Entry
Assets:
A.Cash
B. Gift Card Liability
C. No Entry
Liabilities:
A.Cash
B. Gift Card Liability
C. No Entry
Revenues:
A.Cash
B. Gift Card Liability
C. No Entry
Expenses:
A.Cash
B. Gift Card Liability
C. No Entry
3. Identify & analyze the adjustment Nordstrom records when your friend redeems the card. NOTE: there should be one answer for ACTIVITY, STATEMENT(S) & ACCOUNTS
Activity:
A. Operating
B. Investing
C. Financing
Statement(s):
A. Balance Sheet
B. Income Statement
C. Both
Accounts:
A. Gift Card Liability Increase, Sales Revenue Increase
B. Gift Card Liability Increase, Sales Revenue Decrease
C. Gift Card Liability Decrease, Sales Revenue Increase
D. Gift Card Liability Decrease, Sales Revenue Decrease
4. How does this entry affect the accounting equation? NOTE: If a financial statement item is not affected, select "No Entry" & leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Be sure to pick between Sales Revenue, Gift Card Liability or
Assets:
A. Sales Revenue
B. Gift Card Liability
C. No Entry
Liabilities:
A. Sales Revenue
B. Gift Card Liability
C. No Entry
Income Statement: Revenues – Expenses = Net Income
Revenues:
A. Sales Revenue
B. Gift Card Liability
C. No Entry
Expenses:
A. Sales Revenue
B. Gift Card Liability
C. No Entry
Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues – Expenses = Net Income _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________Explanation / Answer
1. Assume that you buy a gift card for a friend. Identify & analyze the transaction Nordstrom records at the time you buy the card. NOTE: there should be one answer for ACTIVITY, STATEMENT(S) & ACCOUNTS Activity: A. Operating a B. Investing C. Financing Statement(s): A. Balance Sheet B. Income Statement C. Both a Accounts: A. Cash Increase, Gift Card Liability Increase a B. Cash Increase, Gift Card Liability Decrease C. Cash Decrease, Gift Card Liability Increase D. Cash Decrease, Gift Card Liability Decrease 2. How does this entry affect the accounting equation? NOTE: If a financial statement item is not affected, select "No Entry" & leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Be sure to pick between Cash, Gift Card Liability or No Entry Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues – Expenses = Net Income Cash + Gift Card Liability + No Entry No Entry _________________ No Entry No Entry Assets: A.Cash B. Gift Card Liability C. No Entry Liabilities: A.Cash B. Gift Card Liability C. No Entry Revenues: A.Cash B. Gift Card Liability C. No Entry Expenses: A.Cash B. Gift Card Liability C. No Entry 3. Identify & analyze the adjustment Nordstrom records when your friend redeems the card. NOTE: there should be one answer for ACTIVITY, STATEMENT(S) & ACCOUNTS Activity: A. Operating a B. Investing C. Financing Statement(s): A. Balance Sheet B. Income Statement a C. Both Accounts: A. Gift Card Liability Increase, Sales Revenue Increase B. Gift Card Liability Increase, Sales Revenue Decrease C. Gift Card Liability Decrease, Sales Revenue Increase D. Gift Card Liability Decrease, Sales Revenue Decrease a 4. How does this entry affect the accounting equation? NOTE: If a financial statement item is not affected, select "No Entry" & leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Be sure to pick between Sales Revenue, Gift Card Liability or Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues – Expenses = Net Income Sales Revenue - Gift Card Liability - No Entry No Entry _________________ No Entry No Entry Assets: A. Sales Revenue B. Gift Card Liability C. No Entry Liabilities: A. Sales Revenue B. Gift Card Liability C. No Entry Income Statement: Revenues – Expenses = Net Income Revenues: A. Sales Revenue B. Gift Card Liability C. No Entry Expenses: A. Sales Revenue B. Gift Card Liability C. No Entry
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