Save-Always Stores started a customer loyalty program at the beginning of 2020 in which customers making cash purchases of gasoline at Save-Always Gas Bars are issued rewards in the form of grocery coupons. For each litre of gasoline purchased, the customer gets a grocery coupon for 3.8 cents that can be redeemed in Save Always Food Stores. The coupons have no expiry date. Save-Always Stores began selling gift cards in 2021 that do not have expiry dates.

The following are selected transactions in 2020 and 2021:

1. In 2020, the Gas Bars sold 3.8 million litres of gasoline resulting in gas sales of $4,560,000. Grocery coupons were issued with these sales. The expected redemption rate for the grocery coupons is 80%.

2. In 2020, customers redeemed $46,000 of the grocery coupons in the Food Stores.

3. In 2021, the Gas Bars sold 4.65 million litres of gasoline resulting in gas sales of $6,045,000. Grocery coupons were issued with these sales. The expected redemption rate for the grocery coupons is 80%.

4. In 2021, customers redeemed $53,500 of the grocery coupons in the Food Stores.

5. In 2021, customers purchased $82,000 of gift cards, and $45,000 of the revenue from gift card sales was to be recorded by the end of the year.

Instructions

a. Indicate if the following activities will increase, decrease, or have no effect on each of revenues, expenses, and profit:

1. Issuing grocery coupons when sales are made

2. Redeeming grocery coupons

3. Issuing gift cards
4. Redeeming gift cards

b. Record the above transactions.

c. What balances will be included in current liabilities at December 31, 2020 and 2021, regarding the customer loyalty program and gift cards?

What factors should management consider in determining if current liabilities are correctly valued at December 31, 2021?