Disclosure note 2 discusses Target's accounting gift card sales. Disclosure Note 18 indicates the amount of gift card liability that is recognized in targets balance sheetA. How would the following affect Target's gift card liability (indicate "increase," "decrease," or "no change" for each):i. Sale of gift cardii. Redemption of a gift card (the holder using it to acquire goods or services)iii. Increase in breakage estimated for gift cards already sold

The question lacks monetary values, number of gift cards given to customers but Gift cards are rewards to customers by an entity for purchasing more than a predetermined number of goods or a certain product. Gift cards are designed to strengthen customer loyalty. Gift card are a liability as per Revenue standard until redeemed or converted by the customer. When dealing with Gift cards there must be a standalone price per gift card either estimated or taken from previous data. Gift card rewards are usually associated with Revenue but should be separated from revenue as they are deferred revenue (Liability) and can only be earned revenue on redemption date. These kinds of rewards are calculated on a cumulative basis over the years and there must be an estimated number of gift cards to be redeemed. When new gift cards are rewarded the liability increases when redeemed liabilities are decreased and income increased.

Example

01 Jan 2020 sold 20 books for $10,200 included in the price is points per book and estimated standalone price $10. At the 5 points were redeemed.

solution

01 Jan 2020 debit Bank $10200, Credit Revenue (books) $10000, Credit Unearned revenue $200

31 Dec 2020 Debit Unearned revenue $50, Credit Revenue $50

Balance sheet

liabilities

Unearned revenue(200-50)     = $150

Explanation:

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