Question

Texas Roadhouse opened a new restaurant in October. During its first three months of operation, the restaurant sold gift cards in various amounts totaling $2,800. The cards are redeemable for meals within one year of the purchase date. Gift cards totaling $624 were presented for redemption during the first three months of operation prior to year-end on December 31. The sales tax rate on restaurant sales is 4%, assessed at the time meals (not gift cards) are purchased. Texas Roadhouse will remit sales taxes in January.

Required:

1. & 2. Record (in summary form) the $2,800 in gift cards sold (keeping in mind that, in actuality, the firm would record each sale of a gift card individually) and the $624 in gift cards redeemed. (Hint: The $624 includes a 4% sales tax of $24.) (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Journal entry worksheet

• Record the cash received for gift cards.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 1

Journal entry worksheet

• Record the redemption of gift cards.

Note: Enter debits before credits.

	Transaction General Journal Debit Credit 2

Answer 1

Transaction	Account Title	Debit	Credit
1	Cash	$2,800
	Gift Card Liability		$2,800
	( To Record sale of gift card)
2	Gift Card Liability	$624
	Sales Tax Payable		$24	[$624/104*4]
	Service Revenue		$600	[$624/104*100]
	(To record redemption of gift card)

Answer 2

Transaction	Account Title	Debit	Credit
1	Cash	$2,800
	Deferred Revenue		$2,800
	( To Record sale of gift card)
2	Deferred Revenue	$624
	Sales Tax Payable		$24	[$624/104*4]
	Sales Revenue		$600	[$624/104*100]
	(To record redemption of gift card)