OK Corporation sells gift cards in various denominations. The company likes to s
ID: 2609401 • Letter: O
Question
OK Corporation sells gift cards in various denominations. The company likes to sell these cards because cash is collected immediately, but a certain percentage will never be redeemed for merchandise. On December 1, Year One, OK reported a balance in unearned revenue of $728,000 from the sale of gift cards. a. During December, OK sold an additional $578,000 in gift cards. Prepare this journal entry. b. During December, gift cards totaling $327,000 were redeemed to purchase inventory that had originally cost OK $190,000. Prepare these journal entries. Assume OK uses a perpetual inventory system. c. On December 31, OK’s accountant determines that 3 percent of the outstanding gift cards will never be redeemed because they have expired. Prepare a journal entry if necessary. d. What is the amount reported by OK on its December 31, Year One, balance sheet for unearned revenues?
Explanation / Answer
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a.
Accounts
Dr
Cr
Cash
5,78,000
Unearned Revenue
5,78,000
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b.
Accounts
Dr
Cr
Unearned Revenue
3,27,000
Sales Revenue
3,27,000
Cost of Goods Sold
1,90,000
Merchandise Inventory
1,90,000
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c.
Accounts
Dr
Cr
Unearned Revenue $ ( 728,000 + 578,000 - 327,000) x 3%
29,370
Sales Revenue
29,370
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d.
The answer for the fourth question is $949,630
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Hope that helps.
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Accounts
Dr
Cr
Cash
5,78,000
Unearned Revenue
5,78,000
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