Facts

Runway Discount (Runway or the Company) is a privately held online retailer that sells discount high-end fashion. On January 1, 2015 in effort to increase its sales and customer base, Runway implemented a customer referral marketing campaign (the Refer a-Friend Program) whereby existing customers can refer friends to Runway and receive a $25 credit towards the purchase of future merchandise. The terms of the program are as follows:

Runway offers existing customers (the Existing Customer) a $25 gift card if the Existing Customer refers a friend (the New Customer) to Runways website and the New Customer purchases merchandise from Runway.

After a purchase is made by the New Customer, the Existing Customer receives a $25 gift card that can be applied to a future purchase from Runway.

The $25 Referral Gift Card represents the fair value of the cost Runway would pay to acquire a new customer from an unrelated third party or marketing firm who is not a purchaser of its products. The program is open to all of Runways customers and does not need to be combined with any initial or existing purchases.

Assume the following:

On September 20, 2015 Professor Smith refers her friend Jean Tierney to Runway. Jean makes a $100 purchase on October 3, 2015. Smith uses her credit when purchasing $100 of merchandise on November 1, 2015.

Required:

Where in the codification did you find the guidance?

If a credit should be recorded related to Smiths referral of Jean Tierney then how should the $25 Referral Gift Card be recorded in Runways Income Statement? When would Runway record the Referral Gift Card?

What (if any) are the entries Runway would record when the $25 Referral Gift Card is redeemed against a $100 purchase made by the Professor Smith?