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Stored value cards represent an important and increasingly large portion of many retailers’ revenue streams. While the outstanding balances on such cards represent accounting liabilities, these cards provide a myriad of benefits to the issuing firms (e.g., an upfront collection of cash, increased customer loyalty, and the potential for breakage or non-redemption of the card value). To illustrate the accounting treatment and revenue recognition concepts of gift cards, this exercise uses actual data from an annual report of Starbucks Corporation. The exercise introduces students to the nature of gift cards, how cards may impact customer spending, and other managerial implications. Finally, this exercise allows students to rethink their views about the nature of accounting liabilities and how they are often beneficial to a firm’s operations. Pretest and posttest measurements provide evidence of the exercise’s efficacy in achieving desired student learning outcomes.

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Accounting Commons