The following facts relate to gift cards sold by Sunbru Coffee Company during 20

Question

The following facts relate to gift cards sold by Sunbru Coffee Company during 2011. Sunbru's fiscal year ends on December 31. (a.) In October, 2011 sold $3,000 of gift cards, and redeemed $500 of those gift cards. (b.) In November, 2011, sold $4,000 of gift cards, and redeemed $1,400 of October gift cards and $700 of November gift cards. (c.) In December, 2011, sold $3,000 of gift cards, and redeemed $200 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards. (d.) Sunbru views a gift card to be "broken" (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30. Required: 1. Prepare all journal entries appropriate to be recorded only during the month of December, 2011 relevant to gift card sales, gift card redemptions, and gift card breakage. 2. Determine the balance of the unearned revenue liability to be reported in the December 31, 2011, balance sheet. Show the relevant T-account information to support your answer

Explanation / Answer

1) Journal entries for the month of December, 2011:

2) Balance of Unearned liability to be reported in December 31, 2011 = $3,900

This is reflected in the T-account shown below:

Date Account Titles & Explanations Debit Credit December Cash 3,000 2011 Unearned Revenue-Gift Cards 3,000 (gift cards sold during the month) Unearned Revenue-Gift Cards 2,600 Revenue 2,600 (cards of oct, nov and dec redeemed) Cost of Goods Sold at cost Inventory at cost Unearned Revenue-Gift Cards 900 Revenue 900 (Accounting for breakage of cards of October 2011--3000*2100)

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