The following situation has arisen and I would appreciate a quick and
thorough answer citing FASB and SEC resources where possible. Any
clarifications please feel free to ask. Thank you.
X, a public company, is a retailer specializing in clothing,
equipment, supplies, and other products targeted at grade
school, high school, and college students. X is offering a
back-to-school promotion during the month of August in which customers
who spend a minimum of $100 will receive a $20 gift card that can be
applied to their next purchase at X. The gift cards expire on November
1 and cannot be redeemed for cash. Notwithstanding, management
anticipates that between 50% and 85% of the gift cards will be
redeemed. X has not offered similar promotions in the past and does
not have an established accounting policy for such promotions. X's
merchandise margin is approximately 50%.
? If a customer purchases $100 of merchandise during the promotion and as such
receives a $20 gift card, how should X account for the transaction?
? If the gift card is subsequently redeemed or expires unused, how should X
account for the redemption or expiration?
Please answer these two bullets as detailed as possible. Thank you! |
