Prepare journal entries to account for the transaction

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Reference no: EM132828290

Question - Cheap Travel Inc. (CTI), a public company, sells mini-luggage sets to Canadians for travel. CTI is offering a promotion during the month of July and August in which customers who spend a minimum of $1,000 on a luggage set will receive $150 'Luggage Dollars' that can be applied to their next online purchase.

The 'Luggage dollars' expire on November 1 and cannot be redeemed for cash. CTI has not offered similar promotions in the past and does not have an established accounting policy for such promotions. CTI's gross profit margin is approximately 45% and CTI uses a perpetual inventory system.

Required -

a) Assume a customer purchases $1,600 of luggage during the promotion and as such receives $240 'Luggage Dollars'. Prepare journal entries to account for the transaction.

b) Assume the customer in (a) above purchases items online valued at $300 on October 1 and redeems the 'Luggage Dollars' sold above at the same time. Prepare journal entries that captures all the events described herein.

Reference no: EM132828290

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