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: 2019 2020 2021 Gift card sales $ 30,000 $ 45,000 $ 50,000 Gift card usage 12,000 28,000 37,000 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: 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.) What amount of gift card liability should be reported on Ashley’s balance sheet at December 31, 2019, 2020, and 2021?

Explanation / Answer

Particulars 2019 2020 2021 Gift card sales        30,000        45,000        50,000 Less: 1% gift cards never redeemed              300 1.5% gift cards never redeemed              675              750 0.5% 2019 gift cards never redeemed              150 Redemption during the year        12,000        28,000        37,000 Net liability of the year        17,700        16,175        12,250 Add opening balance 0        17,700        33,875 Gift card liability - Balance sheet        17,700        33,875        46,125

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