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What Is Breakage and How Does It Relate to the Accounting

question 53

Essay

What is breakage and how does it relate to the accounting for sales of gift cards? Describe two methods for estimating the amount of breakage.


Definitions:

Coupon Rate

The yearly rate of interest that the issuer of a bond pays to bondholders, typically shown as a percent of the bond's nominal value.

Tax Rate

The part of an individual's or corporation's earnings that is subject to taxation.

Debt-Equity Ratio

The ratio indicating a corporation's reliance on debt financing, found by dividing its total debts by the equity held by its shareholders.

After-Tax Cost of Debt

The net cost of debt after accounting for the effects of taxes, reflecting the actual cost to a company.

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