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Anna's Day Spa sells $25,000 worth of gift certificates in November and December.25% of the gift certificates are redeemed in December prior to the December 31 year end.
-The required year end adjusting entry is:
A)Dr.Revenues $6,250, Cr.Deferred gift card revenues $6,250
B)Dr.Revenues $18,750, Cr.Deferred gift card revenues $18,750
C)Dr.Deferred gift card revenues $6,250, Cr.Revenues $6,250
D)Dr.Gift card revenues $18,750, Cr.Revenues $18,750

Question

Quizplus · Accepted Answer

When gift certificates are sold, the revenue is initially deferred because the service has not yet been provided. When a portion of the gift certificates is redeemed, the corresponding revenue is recognized. In this case, 25% of $25,000, which is $6,250, is redeemed and therefore recognized as revenue. The adjusting entry moves $6,250 from deferred revenue to actual revenue.

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