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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 $7,200, mostly as Christmas presents. They are redeemable for meals within two years of the purchase date, although experience within the industry indicates that 80% of gift cards are redeemed within one year. Gift cards totaling $2,300 were presented for redemption during 2021 for meals having a total price of $2,700. 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 certificates sold during 2021 (keeping in mind that, in actuality, each sale of a gift certificate or a meal would be recorded individually).2. Determine the liability for gift certificates 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? Why?

Respuesta :

abiolataiwo2015

Answer:

A.

Dr Cash 7,200

Cr Deferred revenue 5

7,200

Dr Cash 508

Dr Deferred revenue 2,300

Cr Sales revenue 2,700

Cr Sales taxes payable 108

B.$4,900

C.Sales tax liability - current $108

Sales tax liability - noncurrent nothing

Liability gift certificates - current$ 3,460

Liability gift certificates – noncurrent$1,440

Explanation:

Bavarian Bar and Grill Journal entries

Dr Cash 7,200

Cr Deferred revenue 5

7,200

Dr Cash 508

($2,700 + $108 – $2,300)

Dr Deferred revenue 2,300

Cr Sales revenue 2,700

Cr Sales taxes payable 108

($2700×4%)

Liability for gift certificates to be reported on the December 31, 2021, balancesheet.

7,200- 2,300

Liabilities=4,900

Appropriate amount for each classification (current or noncurrent) of the liabilities at December 31, 2021

Sales tax liability - current$108

Sales tax liability - noncurrent nothing

Liability gift certificates - current$ 3,460

Liability gift certificates – noncurrent$1,440

Gift certificates sold$ 7,200 × 80%

Estimated current liability$ 5,760

Gift certificates redeemed(2,300)

Current liability at December 31$ 3,460

Noncurrent liability at December 31 ($7,200 × 20%)1,440

Total$ 4,900

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