A home gods retailer offers a sales incentive program where customers receive credit towards future purchases based on the dollar amount of their purchases today. For every $10 spent, a customer receives a $1 credit to use in the next 30 days. Based upon historical trends, the firm estimates that 35% of the credits will be redeemed. In the next month, consistent with the firm’s estimate, 35% of the credits were redeemed. The entry recorded to account for the redemption of these credits (excluding the effect of the costs of sales entry):
A home gods retailer offers a sales incentive program where customers receive credit towards future purchases based on the dollar amount of their purchases today. For every $10 spent, a customer receives a $1 credit to use in the next 30 days. Based upon historical trends, the firm estimates that 35% of the credits will be redeemed. In the next month, consistent with the firm’s estimate, 35% of the credits were redeemed. The entry recorded to account for the redemption of these credits (excluding the effect of the costs of sales entry):
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A home gods retailer offers a sales incentive program where customers receive credit towards future purchases based on the dollar amount of their purchases today. For every $10 spent, a customer receives a $1 credit to use in the next 30 days. Based upon historical trends, the firm estimates that 35% of the credits will be redeemed.
In the next month, consistent with the firm’s estimate, 35% of the credits were redeemed. The entry recorded to account for the redemption of these credits (excluding the effect of the costs of sales entry):
A.) Increases Liabilities, Increases Stockholders’ Equity
B.) Increases Liabilities, Reduces Stockholders’ Equity
C.) Reduces Liabilities, Reduces Stockholders’ Equity
D.) Reduces Liabilities, Increases Stockholders’ Equity
C.) No entry needed
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