Regal Hair Salon: Tax and financial reporting of gift cards

Regal Hair Salons Inc., an owner and operator of hair salons across the United States, has enhanced its brand recognition through gift cards and promotions. Using authoritative tax literature, you have to determine the amount and timing of its federal income tax liability for the gift cards of other retailers that Regal has sold, gift cards for its own products and services, and the gift cards that it has issued during a special promotion. You also have an opportunity to determine whether Regal’s financial reporting policies with respect to gift cards are consistent with Generally Accepted Accounting Principles (GAAPs), using FASB Accounting Standards Codification. Finally, based on your review of book-tax differences, you are to determine the appropriate current and deferred tax provision. The case provides an opportunity to examine several issues in a real-world setting, strengthen your tax and accounting research capabilities, and develop your critical thinking skills.

► Regal case demonstrates the connection between tax reporting and financial reporting issues.
► Using authoritative tax literature, students compute tax liability for three kinds of gift cards.
► Students determine whether Regal’s financial reporting for gift cards is consistent with GAAP.
► Based on a review of book-tax differences, students determine current and deferred tax provisions.
► The case provides issues in a real-world setting and helps develop students’ critical thinking skills.