Caribou County Service Station started a customer loyalty program at the beginning of 2013 in which customers making cash purchases of gasoline at the gas bar are issued rewards in the form of coupons. For each litre of gasoline purchased, the customer gets a coupon for 2.5 cents that can be redeemed in the service department toward such things as oil changes or repairs. The coupons have no expiry date. Caribou County Service Station began selling gift cards in 2014 that do not have expiry dates.
The following are selected transactions in 2013 and 2014:
1. In 2013, the gas bar sold 750,000 litres of gasoline, issuing coupons for these sales.
2. In 2013, customers redeemed $5,950 of the coupons in the service department while purchasing $23,800 of repair services for their vehicles, paying the balance in cash.
3. In 2014, the gas bar sold 810,000 litres of gasoline, issuing coupons for these sales.
4. In 2014, customers redeemed $9,500 of the coupons in the service department while purchasing $30,230 of repair services for their vehicles, paying for the balance in cash.
5. In 2014, customers purchased $3,950 of gift cards, and $1,500 of the cards were redeemed by the end of the year.
Instructions
(a) Indicate if the following items will increase, decrease, or have no effect on each of revenues, expenses, and profit:
1. Issuing coupons
2. Redeeming coupons
3. Issuing gift cards
4. Redeeming gift cards
(b) Record the above transactions.
(c) What balances will be included in current liabilities at December 31, 2013 and 2014, regarding the customer loyalty program and gift cards?
TAKING IT FURTHER
What factors should management consider in determining if current liabilities are correctly valued at December 31, 2014?