Reading and Interpreting Nordstrom's Notes-Revenue Recognition The following excerpt is taken from Note 1 on page 42 of Nordstroms Form 10-K for the fiscal year ended January 28, 2012: Net Sales We recognize revenue from sales at our retail stores at the point of sale, net of estimated returns and excluding sales taxes. Revenue from our sales to customers shipped directly from our stores and our online and catalog sales includes shipping revenue, when applicable, and is recognized upon estimated receipt by the customer. We estimate customer merchandise returns based on historical return patterns and reduce sales and cost of sales accordingly. The following excerpt on page 44 is from the same note: Gift Cards We recognize revenue from the sale of gift cards when the gift card is redeemed by the customer, or we recognize breakage income when the likelihood of redemption, based on historical experience, is deemed to be remote. Required: 1. According to the note, when does Nordstrom recognize revenue from sales in its retail stores? Revenue from retail stores is recognized _________________ . How does this differ from the way the company recognizes revenue from sales to customers shipped directly from its stores, its catalog, and online sales? Revenue from sales to customers shipped directly from stores, as well as from catalog and online sales, is recorded _________________ . 2. According to the note, how does Nordstrom recognize revenue associated with its gift cards? _________________ Assume that you buy a gift card for a friend. Identify and analyze the transaction Nordstrom records at the time you buy the card. Activity _________________ Accounts _________________ Statement(s) _________________ How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ Identify and analyze the adjustment Nordstrom records when your friend redeems the card. Activity _________________ Accounts _________________ Statement(s) _________________ How does this entry affect the accounting equation? If a financial statement item is not affected, select "No Entry" and leave the amount box blank. If the effect on a financial statement item is negative, i.e, a decrease, be sure to enter the answer with a minus sign. Balance Sheet Income Statement Assets = Liabilities + Stockholders' Equity Revenues Expenses = Net Income _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________ _________________