Ashley Stores, Inc., sells gift cards for use at its stores. The following data

Question

Ashley Stores, Inc., sells gift cards for use at its stores. The following data pertains to 2019, 2020, and 2021, the company’s first three years of operation:

As of December 31, 2019, Ashley estimates that 1.0% of its gift cards will never be redeemed. As of December 31, 2020, Ashley has revised its estimate, and now believes 1.5% of all gift cards, including those issued in 2019, will not be redeemed. As of December 31, 2021, its estimate remains at 1.5%. Ashley is not required to remit unused gift card amounts to the state.

Required:

1. What amount of breakage revenue should Ashley recognize in 2019, 2020, and 2021? (Do not round intermediate calculations. Round your answers to the nearest whole dollar amount.)

2. What amount of gift card liability should be reported on Ashley’s balance sheet at December 31, 2019, 2020, and 2021?

2019 2020 2021 Gift card sales $ 30,000 $ 45,000 $ 50,000 Gift card usage 12,000 28,000 37,000

Explanation / Answer

Answer 1. 2019 2020 2021 Brekage Revenue 2019 - $30,000 X 1%           300.00 2020 - $45,000 X 1.50%      675.00 2021 - $50,000 X 1.50%      750.00 Answer 2. Gift Card Sales -2019     30,000.00 Less: Brekage - 2019         (300.00) Less: Gift Card Usage (12,000.00) Gift Card Liability -2019 - End. Bal.     17,700.00 Gift Card Liability -2020 - Beg Bal.     17,700.00 Gift Card Sales -2020     45,000.00 Less: Brekage - 2020         (675.00) Less: Gift Card Usage - 2020 (28,000.00) Gift Card Liability -2020 - End Bal.     34,025.00 Gift Card Liability -2021 - Beg Bal.     34,025.00 Gift Card Sales -2021     50,000.00 Less: Brekage - 2021         (750.00) Less: Gift Card Usage - 2021 (37,000.00) Gift Card Liability -2020     46,275.00

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