Question

Pages Books Inc. (Pages) operates a national chain of book stores in Canada. Pages offers gift cards for sale for customers who would like to give a gift of books but who aren't sure what titles they should buy. The cards can be exchanged for any merchandise in Pages' stores or online, but can't be redeemed for cash. At the beginning of 2017, Pages had $4,275,000 in its unredeemed gift card liability account. During 2017, gift cards worth $4,875,000 were sold and $4,189,000 were redeemed to purchase merchandise costing $3,375,000. Pages estimates that about 4 percent of gift cards outstanding at the end of the year won't be redeemed.

Required:
a. For the year ended December 31, 2017, prepare all journal entries (transactional and adjusting) Pages must make.
b. How would the unused gift cards be reported in Pages' financial statements?
c. What effect does the sale of gift cards have on Pages' current ratio? What impact does using a gift card have on the current ratio?
d. Why is the sale of a gift card not considered revenue for Pages?



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  • CreatedFebruary 26, 2015
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