The Carrot Top Ltd. is a trendy clothing store that is very popular with young teens. Because it is difficult to select clothes that young people might wear, the store offers gift cards to parents, friends, and relatives. The cards are very popular, particularly for birthdays. When a card is purchased, the cashier identifies the purchase as a gift card and activates the card so that it can be used within 24 hours. There is no time limit on when the card must be used.
Required:
Using the revenue recognition criteria, explain how the store should account for the purchase of a gift card. Discuss how the store could account for gift cards that are not used. Is there a time when the store can assume that the card will not be used?