Meadville Industries Sells Gift Certificates That Are Redeemable in Merchandise

question 101

Essay

Meadville Industries sells gift certificates that are redeemable in merchandise. During 2009, Meadville sold gift certificates for $88,000. Merchandise with the total price of $52,000 was redeemed during the year. For Meadville, the cost of the merchandise sold was $32,000. Meadville sold gift certificates for the first time in 2009. Assuming that Meadville uses the perpetual inventory method, the journal entry recording the redemption of the gift certificates during 2009 will include:
a. a credit to Cost of Goods Sold for $32,000
b. a debit to Deferred Revenue for $88,000
c. a credit to Sales for $52,000
d. a credit to Deferred Revenue for $52,000

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Definitions:

Pure Private Good

A type of good that is both excludable and rival in consumption, meaning access to the good can be limited, and one person's use of the good diminishes its availability for others.

Pure Public Good

A pure public good is characterized by non-excludability and non-rivalry, meaning one person's consumption does not reduce availability for others and no one can be prevented from consuming it.

Single Peaked

Refers to a preference or utility pattern where an individual's satisfaction increases up to a certain point, after which it starts to decrease, creating a peak at the optimum point.

Public Goods

Goods that are characterized by being non-excludable and non-rivalrous, meaning that no one can be excluded from their use and one person's use does not diminish another's.