Apple Inc. is the number one online music retailer through its iTunes music store. Apple sells iTunes gift cards in $15, $25, and $50 increments. Assume Apple sells $19.2 million in iTunes gift cards in November, and customers redeem $12.2 million of the gift cards in December. Required:
1. Record the receipt of cash for gift cards.
2. Record the revenue earned from redemption of gift cards.
3. What is the ending balance in Deferred revenue?

Answer and Explanation:

The Journal entries are shown below:-

1. Cash Dr, $19,200,000

             To Deferred revenue $19,800,000

(Being receipt of cash for gift cards is recorded)

2. Deferred revenue Dr, $12,200,000

              To Sales revenue $12,800,000

(Being revenue recognized from the redemption of gift cards is recorded)

3. The computation of ending balance in Deferred revenue is shown below:-

Ending balance in Deferred revenue = Sold apples - Redeem amount of the gifts

= $19,200,000 - $12,200,000

= $7,000,000

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