Question

Peterson Photoshop sold $1,100 in gift cards on a special promotion on October 15, 2016, and sold $1,650 in gift cards on another special promotion on November 15, 2016. Of the cards sold in October, $110 were redeemed in October, $275 in November, and $330 in December. Of the cards sold in November, $165 were redeemed in November and $385 were redeemed in December. Peterson views the probability of redemption of a gift card as remote if the card has not been redeemed within two months. At 12/31/2016, Peterson would show a deferred revenue account for the gift cards with a balance of: $1,650. $0. $1,100. $1,485.

Answer 1

Deferred Revenue account for the gift cards will show a balance of $1,100.

Step-by-step explanation:

This $1,100 is the balance from the November 15 sales of $1,650 for which $165 and $385 were redeemed in November and December respectively.

The unredeemed balance of $385 from October 15 sales would be written off as uncollectible since Peterson views the probability of redemption as remote after two months.

It is prudent, therefore, to exclude $385 from deferred revenue account.