Question

During 2017, customers purchased gift cards from LatteBucks, all of which expire on December 31, 2019. At the end of 2018, some of the gift cards stll have not been redeemed. How should the unredeemed gift cards be reported on LatteBucks's 2018 year-end financial statements?
A. As a prepaid asset on the balance sheet
B. As a current liability on the balance sheet
C. As an expense on the income statement
D. As sales revenue on the income statement

Answer 1

Answer:

B. As a current liability on the balance sheet

Explanation:

Prepaid Cards has expiry of December 31, 2019 and LatteBucks is liable to redeem that card until the expiry date. So, the unredeemed gift cards be reported on LatteBucks's 2018 year-end financial statements.

At time of Sale transaction might be as

Dr. Cash                                      $XXX

Cr. Redeemable card payable  $XXX