Question
1. Decoremore.ca sells various home decoration items online. The company also sells gift cards that can be used to purchase items from the Decoremore.ca website.
1. Decoremore.ca sells various home decoration items online. The company also sells gift cards that can be used
to purchase items from the Decoremore.ca website. These cards cannot be redeemed for cash. At the beginning
of 2019, Decoremore.ca had a balance of $175,000 in its gift card liability account. During 2019, it sold
$350,000 in gift cards and $160,000 worth of gift cards were redeemed for merchandise that cost Decoremore.ca
$85,000. It is estimated that 3% of the gift card liability at the end of 2019 wont be redeemed by customers.
a. Prepare the journal entries to record to sale of gift cards and redemption of gift cards in 2019
b. Record the yearend adjusting entry to record the gift cards that wont be redeemed.
c. What is the 2019 year-end balance in the gift card liability account after the above adjusting entry?
d. How would the sale of gift cards affect the companys current ratio?
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