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 during the first three months of operation 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.
1. 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).
2. Record the $1,900 in gift cards redeemed. The $1,900 includes a 7% sales tax of $124.30.
3. Determine the balance in the unearned revenue account (remaining liability for gift certificates) to be reported on the December 31 balance sheet.