Question

Apple Inc. is the number one online music retailer through its iTunes music store. Apple sells iTunes gift cards in $15, $25, and $50 increments. Assume Apple sells $19.7 million in iTunes gift cards in December, and customers redeem $12.7 million of the gift cards.

Record the necessary entries in the Journal Entry Worksheet below.
Record the receipt of cash for gift cards.
Record the revenue earned from redemption of gift cards.
a. What is the ending balance in the unearned revenue account?

Answer 1

Answer: The ending balance in the unearned revenue account is $7 millions

Step-by-step explanation:

The entry in the cash receipt journal will be

Dr : cash sales $19.7 million

Cr: Account receivable $12.7million

The unearned revenue account will be

Dr : cash sales 19.7million

Cr : Account receivable 12.7million

The balance c/d as at 31st December will be a credit balance of $7million

Therefore the ending balance in the unearned revenue account is $7million

Answer 2

Explanation: Journal Entries

Debit: Cash. $19.7m

Credit: Unearned Revenue $19.7m

Being sales of gift card for the month of December.

Debit: Unearned Revenue. $12.7m

Credit: Sales. $12.7m

Being actual gift card redeemed for the month if December.

Unearned Revenue a/c has a credit bal of $7m as unredeemed gift card. Its a liability to the company as they have the money but the cards are yet to be redeemed.