Question

Assume TIF sold a $100 gift card to a customer in December. Balance the Accounting Equation for the customer's use of the gift card in the following January to purchase $100 of merchandise (cost to TIF of $80). Select all that are correct.

Select one or more:

a. Record (80) as Cost of goods sold under Owners’ Equity

b. Record 100 as Revenue under Owners’ Equity

c. Record 80 as Cost of goods sold under Owners’ Equity

d. Record (80) as Inventory under Assets

e. Record 80 as Deferred revenue under Liabilities

f. Record (100) as Deferred revenue under Liabilities

Answer 1

1) In December when TIF sells the gift card, the entry would be:

Cash account Dr. to 100

Deffered Revenue under liabilities 100

(Being Gift Card sold)

2) When in january a customer uses his gift card to purchase merchandise:

Revenue account Dr. 100

to Deferred Revenue under liabilities 100

( Being Revenue recorded)

Cost of goods sold account Dr. 80

Profit and loss account DR. 20

To Revenue 100.

Therefore we have used 2 of the statements:

1) Record (100) as Deferred revenue under Liabilities

2) Record 80 as Cost of goods sold under Owners’ Equity