Lady G's Fashions, a specialty retailer of women's apparel, markets its products through retail stores and catalogs. Selected information from its 2019 and 2018 balance sheets is as follows.

The following excerpts are from Lady G's Fashions accompanying footnotes:

• Catalog costs in the direct segment are considered direct response advertising and as such are capitalized as incurred and amortized over the expected sales life of each catalog, which is generally a period not exceeding six months.

• The Company periodically enters into arrangements with certain national magazine publishers whereby the Company includes magazine subscription cards in its catalog mailings in exchange for advertising credits or discounts on advertising.

REQUIRED:

a. Assume that Lady G's Fashions spent $62,550 to design, print, and mail catalogs in 2019. Also assume that it received advertising credits of $849. Prepare the entry, using the financial statement effects template and in journal entry form, that Lady G's Fashions would have recorded when these costs were incurred.

b. Prepare the adjusting entry, using the financial statement effects template and in journal entry form, that would be necessary to record its amortization of prepaid catalog costs.

c. How do advertising credits expire? Prepare the adjusting entry, using both the financial statement effects template and in journal entry form, that Lady G's Fashions would record to reflect the change in advertising credits.

d. Assume that Lady G's Fashions sold gift certificates valued at $19,175 in 2019. Prepare the entry, using the financial statement effects template and in journal entry form, that Lady G's Fashions would make to record these sales. Next, prepare the entry, using the financial statement effects template and in journal entry form, that it makes to record merchandise sales to customers who pay with gift certificates.

Transcribed Image Text:

Selected Balance Sheet Data ($ thousands) 2018 2019 Prepaid catalog expenses (asset) Advertising credits receivable.. Gift certificate liability. $3,894 $4,306 ... 21 534 6,108 7,053