Question

Bavarian Bar and Grill opened for business in November 2016. During its first two months of operation, the restaurant sold gift certificates in various amounts totaling $9,000, 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 certificates are redeemed within one year. Certificates totaling $3,200 were presented for redemption during 2016 for meals having a total price of $3,600. The sales tax rate on restaurant sales is 4%, assessed at the time meals (not gift certificates) are purchased. Sales taxes will be remitted in January.

Required:

1.

Prepare the appropriate journal entries (in summary form) for the gift certificates sold during 2016 (keeping in mind that, in actuality, each sale of a gift certificate 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.) 2. Determine the liability for gift certificates to be reported on the December 31, 2016, balance sheet. 3. What is the appropriate amount for each classification (current or noncurrent) of the liabilities at December 31, 2016?

Answer 1

solutions 1 ournal entry Debit credit S.NO account title gooo 9000 cash Gift Certificate liability (To recoad Sale made for gift Certificate) suy 2 3200 cash (36004144 - 3200] Gift certificate liability sales revenue sales tax payable (3600x4%) 3600 2 computation of liability of Gift cestificate to be seposted on Dec 31 Gift certificates sold 9000 9 & Less Gift certificates vedeemed 3200 Gift certificate liability $5800

3) Classification of liability Balance Current liabilities; 144 9000 70% sales tax payable Gift cestificate sold Estimated % redemed with year Estimated current liability before redemption 9000x40%) Gift Certificate redeemed in Remaining gift cesticates Non current liabilites, 6300 (3200) 31 00 5800 ungedeemed Gift Certificates Cussent portion of contendeemed certificates Non cussent liability (3100) 2700