Background: Ignite Bookshop is an off-campus private retailer that focuses on selling products to students, faculty, staff and other followers of the University of Illinois Chicago. Merchandise includes textbooks, branded school apparel and accessories, and computers and other technology products. Recognizing that sales of gift cards might be a popular item for families of UIC students, Ignite Bookshop is considering starting a gift card sales program. Under the program, customers may purchase either physical or digital gift cards for cash or other current payment. The gift cards can be redeemed by holders to make purchases either in person or online at Ignite Learning at a future date. The gift cards will have no expiration dates. Ignite Bookshop would like to understand how it will be required to account for the sales and redemption of gift cards in its financial statements. Ignite realizes that some gift cards are likely to never be used as some holders may move away, lose track of the gift cards or simply forget about them. The value of unexercised gift cards is commonly referred to among retailers as 'breakage'. Ignite is entitled to the full amount of any gift card balances that go unused.

Required: write an Accounting Issues Memo to address the accounting issues relating to the sale and redemption of gift cards issued by Ignite Bookshop, including any requirements for addressing breakage. Your analyses should rely primarily on the authoritative guidance in the FASB Codification, however should also use at least one high quality nonauthoritative source to supplement your research in the Codification. You should assume that the new revenue recognition rules under ASC 606 (required for private companies for annual reporting periods beginning after December 15, 2019) are applicable to this setting. Be sure to include a section in your memo that describes the impact of the accounting of the gift card transactions on Ignite's key financial statements (e.g. balance sheet, income statement and statement of cash flow). Further, illustrating your recommended accounting treatment of each aspect of the gift card transaction cycle using journal entries should be included as a helpful way to portray your guidance. You should identify and address separately the issues of 1) the sale of gift cards, 2) the redemption of gift cards by customers and 3) potential impacts, if any, of breakage.

You may find that there are subissues to consider in order to answer the primary question for each issue. While including cites and guidance from the Codification in your memo are important, a key part of the memo includes your analysis- e.g., reasons for citing particular Codification sections, your interpretation of how the guidance applies to the various aspects of gift card accounting. You should clearly state and evaluate any assumptions you make about the terms of the gift cards and your conclusion on the accounting treatment. Your conclusions should include a summary of the key factors and features of the gift card program that you considered in drawing your conclusions. Logistics and format: You should follow the standard accounting issues memo format (e-text Chapter 4 and Lecture Notes #11). It is highly recommended that you review the style and format of the Sample Accounting Issues Memo in the Chapter 4 Appendix as a guide for memo approach and structure. I also suggest that you use the 'guidance sandwich' approach (see Chapter 4 and Coursenotes #11) when presenting each use or cite of relevant Codification sections.