Question

Bavarian Bar and Grill opened for business in November 2021. During its first two months of operation, the restaurant sold gift cards in various amounts totaling $5,800, mostly as Christmas presents. They are redeemable for meals within two years of the purchase date, although experience within the industry indicates that 70% of gift cards are redeemed within one year. Gift cards totaling $1,600 were presented for redemption during 2021 for meals having a total price of $2,000. The sales tax rate on restaurant sales is 4%, assessed at the time meals (not gift cards) are purchased. Sales taxes will be remitted in January Required: 1. Prepare the appropriate journal entries (in summary form) for the gift cards and meals sold during 2021 (keeping in mind that, in actuality, each sale of a gift card or a meal would be recorded individually). 2. Determine the liability for gift cards to be reported on the December 31, 2021, balance sheet. 3. What is the appropriate classification (current or noncurrent) of the liabilities at December 31, 2021? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Prepare the appropriate journal entries (in summary form) for the gift cards and meals sold during 2021 (keeping in mind that, in actuality, each sale of a gift card or a meal would be recorded individually). (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

Ans:

S. No.	Account Tittle	Debit	Credit
a.	Cash	$5,800.00
	Gift Certificate Liability		$5,800.00
	To Record sale made for Gift Certificate
b.	Cash [2000*1.04 – 1600]	$480.00
	Gift Certificate Liability	$1,600.00
	Sales revenue		$2,000.00
	Sales tax payable (4%x2000)		$80.00
	To Record Redemption of Gift Certificate

2. Computation of Liability of Gift Certificate to be reported on Dec 31
Gift certificates sold	$5,800.00
Less: Gift certificates redeemed	-$1,600.00
Gift Certificate Liability	$4,200.00

3. Classification of Liability Balance
Current Liabilities
Sales tax payable	$80.00
Gift certificates sold	$5,800.00
Estimated % redeemed within 1 year	x 70%
Estimated current liability before redemption(5200*80%)	$4,060.00
Gift certificates redeemed in 2018	-$1,600.00
Remaining gift certificates classified as current liability	$2460
Non current Liabilities
Gift certificates classified as non current liability
Unredeemed gift certificates	$4,200.00
Current portion of unredeemed certificates	-$2,460.00
Non current liability	$1,740.00

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