Maffett Ticket Brokers is a reseller of tickets to sporting events and concerts.

Question

Maffett Ticket Brokers is a reseller of tickets to sporting events and concerts. During 2019, Maffett sold gift cards totaling $250,000. Based on past experience, Maffett expects that 1% of the gift card purchases will not be redeemed by the time they expire, five years after issuance. During 2019, $150,000 of the gift card purchases from 2019 were used to purchase tickets that had cost Maffett $90,000. Required: Prepare the journal entry Maffett uses to record its activity related to the above transactions in 2019, assuming state law does not require Maffett to remit the breakage to the state. Prepare the journal entry Maffett uses to record its activity related to the above transactions in 2019, assuming state law requires Maffett to remit the breakage to the state upon expiration of a gift card.

Explanation / Answer

1.

Dr. Bank $ 250,000

To Revenue (Gift Cards) 250,000

(Being sale of Gift Card Recorded)

2.

Dr. Cost (Gift Card Purchase) $90,000

To Bank $ 90,000

(Being Cost of Purchase recorded for Gift Card Sale Worth $ 150,000)

3.

Dr. Cost (Gift Card Purchase) $60,000

To Accrued Expenses $60,000

(Being Accrual entry for $100,000 unused Gift Card Made)

Notes to above:

(90000 / 150000*250000 = 150000, (150000-90000= 60000)

Notes:

As per the principle of conservatism, we will record all anticipated future

expenses but will not record future anticipated income.

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