nordstrom sells gift cards for cash nordstrom has promised to provide merchandise to 564022

Nordstrom sells gift cards for cash. Nordstrom has promised to provide merchandise to the holder of the gift card up to the amount stated on the card, so Nordstrom has an obligation. Assume that gift cards expire five years after the issue date so that Nordstrom has no obligation to provide merchandise to the cardholder after the expiration date. If Nordstrom sells a gift card for $100 on the first day of its fiscal year, Nordstrom expects to deliver on its promise of providing merchandise to the cardholder sometime during the next 60 months. Nordstrom has received $100 cash, so the transaction meets criterion 2. However, Nordstrom has not met criterion 1. It has incurred an obligation to perform in the future, equal to the amount of cash received, $100; this is an example of a deferred performance obligation. At the time of the gift card purchase, Nordstrom would record the following journal entry:

At the time of the gift card purchase, to record the sale of the gift card for cash.

Nordstrom recognizes revenue as it performs by delivering merchandise to the cardholder. If the cardholder fails to use the entire $100 amount by the expiration date, Nordstrom will recognize as revenue any remaining amount on the card.12 If the cardholder uses the card twice, to purchase a $55 sweater and a $10 pair of socks, Nordstrom would make the following journal entries to recognize revenues.13

At the time of the sweater sale, to recognize the revenue on the sale of the sweater.

At the time of the sock sale, to recognize the revenue on the sale of the socks.

At the expiration date, Nordstrom would recognize the remaining amount on the card as revenue with the following journal entry:

To recognize revenue on the unused portion of the gift card at the end of 60 months when the card has expired.