Gift Cards/Breakage. Elliot Electronics Company offers gift cards to its customers. Elliot reported $400,000 in gift card sales in Year 1 and received cash. The company reliably estimates the amount of breakage at 15% and the time period of gift card redemption as two years (this information is given to you). Elliot uses the proportional method to account for breakage. Customers redeemed $180,000 in gift cards in Year 1. Elliot’s cost of goods sold percentage is 35%. Elliot uses the perpetual inventory system.

Provide the journal entries for Year 1.

Gift Cards/Breakage. What amount did Starbucks disclose in its 2021 10-K for “Stored value cards and loyalty program” as of the fiscal year ended on October 3, 2021? How much breakage revenue did Starbucks recognize for the fiscal year ended October 3, 2021, related to company-operated stores?

[Note: you will need to access Starbucks’ 2021 10-K and search the notes to the financial statements to obtain this information. Otherwise, there is no work that needs to be shown.]