The balance of the deferred revenue liability to be reported in the December 31, 2024 is $3,900.
In October 2024, $3,000 of gift cards were sold and $500 were redeemed. The balance is:
$3,000 - $500 = $2,500
In November 2024, $4,000 of gift cards were sold. The full $4,000 is deferred revenue.
In November 2024, $1,400 of October gift cards and $700 of November gift cards were redeemed. This reduces the deferred revenue. The balance is:
$1,400 + $700 = $2,100
In December 2024, $3,000 of gift cards were sold. According to the criteria, the $1,400 of October gift cards and $700 of November gift cards sold in December would also be considered broken. So, the deferred revenue increases by:
$1,400 + $700 = $2,100
In December 2024, $200 of October gift cards, $2,000 of November gift cards and $400 of December gift cards were redeemed. This reduces the deferred revenue by:
$200 + $2,000 + $400 = $2,600
The final deferred revenue liability is
= $2,500 + $4,000 + $2,100 - $2,100 - $2,600
= $3,900
Preparing the t-account
Deferred Gift Card Revenue
Beg Balance
October sales $3,000.00 $500.00 October redemption
November sales $4,000.00 $2,100.00 November redemption
December sales $3,000.00 $2,600.00 December redemption
$900.00 December breakage
$3,900.00 Balance
Full question:
The following facts relate to gift cards sold by Sunbru Coffee Company during 2024. Sunbru’s fiscal year ends on December 31.
(a.) In October 2024, sold $3,000 of gift cards, and redeemed $500 of those gift cards.
(b.) In November 2024, sold $4,000 of gift cards, and redeemed $1,400 of October gift cards and $700 of November gift cards.
(c.) In December 2024, sold $3,000 of gift cards, and redeemed $200 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards.
(d.) Sunbru views a gift card to be “broken” (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30.
Determine the balance of the deferred revenue liability to be reported in the December 31, 2024, balance sheet. Prepare the relevant T-account information to support your answer.