Merchandising companies, such as Best Buy and Circuit City, sell gift cards to their customers.

Best Buy and Circuit City would record these as unearned revenue, When the gift cards are redeemed, revenue is then recognized.

Required

I. Review Best Buy and Circuit City financial statements in Appendix A. Which liability account for Best Buy and for Circuit City would likely include unearned revenue?

2. Show the required journal entry to record the unearned revenue when the gift card is sold.

2. Research Best Buy’s footnotes to discover how it applies the revenue recognition 

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Five-Year Financial Highlights $ in millions, except per share amounts Fiscal Year Consolidated Statements of Earnings Data Revenue Operating income Earnings from continuing operations Loss from discontinued operations, net of tax Gain (loss) on disposal of discontinued operations, net of tax Cumulative effect of change in accounting principles, net of tax 2005 2004 2003 2002 2001 $27,433 1,442 934 $24,548 1,304 800 $20,943 1,010 622 $17,711 908 $15,189 611 570 401 - 18 50 (29) (441) 1 (66) 151 (5) 1 Net earnings 984 705 18 (82) 99 570 396 Per Share Data Continuing operations $2.79 $2.41 $1.90 $1.77 Discontinued operations (0.09) (1.34) $1.26 (0.02) Gain (loss) on disposal of discontinued operations 0.15 (0.20) Cumulative effect of accounting changes (0.25) Net earnings 2.94 2.13 0.31 TIR 1.24 Cash dividends declared and paid 0.42 0.40 - Common stock price: High 62.20 62.70 53.75 51.47 59.25 Low 43.87 25.55 16.99 22.42 14.00 Operating Statistics Comparable store sales change 4.3% 7.1% 2.4% 1.9% 4.9% Gross profit rate 23.7% 23.9% 23.6% 20.0% 18.5% Selling, general and administrative expense rate 18.4% 18.6% 18.8% 14.9% 14.5% Operating income rate 5.3% 5.3% 4.8% 5.1% 4.0%