Regal Hair Salon: Tax and Financial Reporting of Gift Cards

The document discussed the tax and financial reporting of gift cards at Regal Hair Salons, Inc., which operated numerous salons across the U.S. Regal sold both its own gift cards and those of other retailers, recognizing commission revenue at the time of sale for the latter. For its own gift cards, Regal recorded a liability upon sale and recognized revenue upon redemption. A special promotion in 2012 issued $4 million in gift cards, with $3.2 million redeemed by year-end. The case study aimed to enhance students' tax and accounting research skills by examining the federal income tax implications and GAAP compliance of these transactions, highlighting the differences between book and tax reporting. The study included feedback from students, indicating high satisfaction and improved skills in tax research and critical thinking. The document also provided specific tax liability calculations for Regal's gift card sales and discussed the impact of handling gift card operations through a wholly-owned management company.