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Case: 13-1: Refer-A-Friend Gift Card

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Question;Case: 13-1: Refer-A-Friend Gift Card.Case 13-01Refer-a-Friend Program Runway Discount (?Runway? or the ?Company?) is a privately held online retailer that sells discounted high-end fashion. In an effort to increase its sales and customer base,Runway implemented a customer referral marketing campaign (the ?Refer-a-FriendProgram?) whereby existing customers can refer friends to Runway and receive a $25credit towards the purchase of future merchandise. The terms of the program are as follows: Runway offers existing customers (the ?Existing Customer?) a $25 credit (the?$25 Referral Credit?) if the Existing Customer refers a friend (the ?New Customer?) to Runway?s Web site and the New Customer purchases merchandise from Runway.After a purchase is made by the New Customer, the Existing Customer receives a$25 credit to be applied to a future purchase from Runway.The $25 Referral Credit represents the fair value of the cost Runway would pay toacquire a new customer from an unrelated third party or marketing firm who is not apurchaser of its products. The program is open to all of Runway?s customers and does notneed to be combined with any initial or existing purchases.Required:1. How should the $25 Referral Credit be recorded in Runway?s Income Statement? as a reduction of revenue or as a marketing expense?2. When would Runway record the $25 Referral Credit?What are the entries Runway would record when the $25 Referral Credit is earnedby the Existing Customer?What are the entries Runway would record when the $25 Referral Credit isredeemed against a $100 purchase made by the Existing Customer?3. Runway is planning to adopt IFRSs in the near future. What is the relevantaccounting guidance they would follow under IFRSs?? Solve the case, using the FASB Codification to support your position.? Be sure to provide the location in the Codification where you obtained your authoritative support for your position, and be sure to employ the principles of clear writing identified by the SEC.

 

Paper#54654 | Written in 18-Jul-2015

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