A retail store sold gift certificates that are redeemable in merchandise. The gift certificates lapse one year after they are issued. How would the deferred revenue account be affected by each of the following? Redemption of certificates Lapse of certificates
a. Decrease Decrease
b. Decrease No effect
c. No effect Decrease
d. No effect No effect

The correct option is b. That is, the deferred revenue account will be affected as follows:

Redemption of certificates                   Lapse of certificates

b. Decrease                                                        No effect

Explanation:

The given options in the question are clearly stated as follows:

Redemption of certificates                   Lapse of certificates

a. Decrease                                                        Decrease

b. Decrease                                                        No effect

c. No effect                                                         Decrease

d. No effect                                                         No effect

The explanation of the answers is now provided as follows:

When a gift certificate is redeemed, it implies that merchandise has been given to the holder of the gift certificate in return. This will therefore decrease the deferred revenue account.

However, the moment a gift certificate is lapse; it is no longer possible redeem it for merchandise. That is, no merchandise has been given to the holder of the gift certificate in return. This therefore indicates that that the deferred revenue account will not change.

Therefore, the correct option is b. That is, the deferred revenue account will be affected as follows:

Redemption of certificates                   Lapse of certificates

b. Decrease                                                        No effect

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