During the month of December, Emile’s Electronics sells $7,000 of gift cards. In January, $5,000 of these cards are redeemed for merchandise with a cost of $3,000. In February, a further $1,500 of these cards are redeemed for merchandise with a cost of $1,000. The company uses a perpetual inventory system.
Required:
a. Prepare journal entries to record the transactions for December, January, and February.
b. How much income (if any) was earned in each of these months?
c. What liability (if any) would appear on the company’s statement of financial position at the end of each of these months?