Ashley Stores, Inc., sells gift cards for use at its stores. The following data pertain to 20X1, 20X2, and 20X3, the company’s first three years of operation:

As of December 31, 20X1, Ashley estimates that 1.0% of its gift cards will never be redeemed.

As of December 31, 20X2, Ashley has revised its estimate, and now believes 1.5% of all gift cards, including those issued in 20X1, will not be redeemed. As of December 31, 20X3, its estimate remains at 1.5%. Ashley is not required to remit unused gift card amounts to the state. 

Required:

1. What amount of breakage revenue should Ashley recognize in 20X1, 20X2, and 20X3?

2. What amount of gift card liability should be reported on Ashley’s balance sheet at December 31, 20X1, 20X2, and 20X3?

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20X1 20X2 20X3 Gift card sales $ 30,000 $45,000 $50,000 Gift card usage 12,000 28,000 37,000