The following excerpt is taken from Note 1 on page 41 of Nordstrom's Form 10-K for the
Question:
The following excerpt is taken from Note 1 on page 41 of Nordstrom's Form 10-K for the fiscal year ended January 30, 2016:
Net Sales
We recognize revenue net of estimated returns and excluding sales taxes. Revenue from sales to customers shipped directly from our stores, website and catalog, which includes shipping revenue when applicable, is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly.
The following excerpt on page 43 is from the same note:
Gift Cards
We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote.
Required
1. According to the note, when does Nordstrom recognize revenue from sales to customers shipped directly from its stores, its website and catalog sales? Why would the way in which revenue is recognized from these three types of sales differ from sales in its retail stores?
2. According to the note, how does Nordstrom recognize revenue associated with its gift cards? Assume that you buy a gift card for a friend. Identify and analyze the transaction Nordstrom records at the time you buy the card. Identify and analyze the adjustment Nordstrom records when your friend redeems the card.
Step by Step Answer:
Using Financial Accounting Information The Alternative to Debits and Credits
ISBN: 978-1337491471
10th edition
Authors: Gary A. Porter, Curtis L. Norton