During its first three months of operation, Palimino's sold gift cards in various amounts totaling $5,200. The gift cards are redeemable for meals within one year of the purchase date. Gift cards totaling $1,900 were presented for redemption prior to year-end on December 31. The sales tax rate on restaurant sales is 7%, assessed at the time meals (not gift cards) are purchased. Palimino's will remit sales taxes in January.
Required:
a. Record (in summary form) the $5,200 in gift cards sold (keeping in mind that, in actuality, each sale of a gift card or a meal would be recorded individually).
b. Record the $1,900 in gift cards redeemed. The $1,900 includes a 7% sales tax of $124.30.
c. Determine the balance in the deferred revenue account (remaining liability for gift cards) to be reported on the December 31 balance sheet.
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