In Lizzie Shoes’ experience, gift cards that have not been redeemed within 12 months are not likely to be redeemed. Lizzie Shoes sold gift cards for $18,000 during August of 2016. $4,000 of cards were redeemed in September of 2016, $3,000 in October, $2,500 in November, and $2,000 in December of 2016. In 2017 an additional $1,000 of cards were redeemed in January and $500 in February.

How much gift card revenue associated with the August 2016 gift card sales would Lizzie get to recognize in 2016 and 2017?

2016 revenue = $11,500

2017 revenue = $6500

Explanation:

Given the following;

Gift card sold out in August 2016:

Total = $18,000

Gift cards Redeemed in 2016:

September = $4000

October = $3000

November = $2500

December = $2000

Gift cards redeemed in 2017:

January = $1000

February = $500

Total Recognized gift card revenue in 2016:

$ (4000 + 3000 + 2500 + 2000) = $11,500

Total Recognized gift card revenue in 2017:

Total gift cards rolled out - total recognized in 2016:

$18,000 - $11,500 = $6,500

Though only $1500 was redeemed in 2017, however gift cards not redeemed within 12 months are not likely to be redeemed. The 12 month period ends in July 2017. Hence it will be recognized in 2017.

Revenue worth $11,500 is recognized in 2016, and revenue worth $6,500 is recognized in 2017.

Explanation:

The question requires the calculation of revenue associated with August 2016 gift card sales which would be recognized in 2016 and 2017.

Revenue for 2016 consists of all gift cards sold during August 2016 and redeemed in 2016. Hence,

Revenue recognized in 2016

= $4,000 + $3,000 + $2,500 + $2,000

= $11,500

The total sales made during August 2016 are worth $18,000 while the revenue recognized during 2016 is $11,500. The remaining revenue shall, therefore, be recognized during 2017. Hence,

Revenue recognized in 2017

= $18,000 - $11,500

= $6,500