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 $21 million in iTunes gift cards in November, and customers redeem $14 million of the gift cards in December.
Required:
a. Record the advance collection of $21 million for iTunes gift cards in November.
b. Record the revenue earned when $14 million in gift cards is redeemed in December.
c. What is the ending balance in the Deferred Revenue account?

Answer 1

Answer:

A. Nov 30 Dr Cash 21,000,000

Cr Deferred Revenue 21,000,000

B. Dec 31 Dr Deferred Revenue 14,000,000

Cr Sales Revenue 14,000,000

C. $7,000,000

Explanation:

a. Preparation of the journal entry to Record the advance collection of $21 million for iTunes gift cards in November

Nov 30 Dr Cash 21,000,000

Cr Deferred Revenue 21,000,000

(Being To record the cash received for gift cards)

b. Preparation of the journal entry to Record the revenue earned when $14 million in gift cards is redeemed in December

Dec 31 Dr Deferred Revenue 14,000,000

Cr Sales Revenue 14,000,000

(Being To record the redemption of gift cards)

c. Calculation for the ending balance in the Deferred Revenue account

Ending Balance in Deferred revenue = $21,000,000 - $14,000,000

Ending Balance in Deferred revenue = $7,000,000

Therefore ending balance in deferred revenue account will be $7,000,000.