Save-Always Stores started a customer loyalty program at the beginning of 2013 in which customers making cash purchases of gasoline at Save-Always Gas Bars are issued rewards in the form of grocery coupons. For each litre of gasoline purchased, the customer gets a grocery coupon for 3.5 cents that can be redeemed in Save-Always Food Stores. The coupons have no expiry date. Save-Always Stores 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 Bars sold 3.5 million litres of gasoline, issuing grocery coupons for these sales.
2. In 2013, customers redeemed $45,000 of the grocery coupons in the Food Stores while purchasing $1.8 million of groceries, paying the balance in cash.
3. In 2014, the Gas Bars sold 4,250,000 litres of gasoline, issuing grocery coupons for these sales.
4. In 2014, customers redeemed $52,500 of the grocery coupons in the Food Stores while purchasing $2,230,000 of groceries, paying for the balance in cash.
5. In 2014, customers purchased $75,000 of gift cards, and $45,400 of the cards were redeemed by the end of the year.
Instructions
(a) Indicate if the following activities will increase, decrease, or have no effect on each of revenues, expenses, and profit:
1. Issuing grocery coupons
2. Redeeming grocery 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?