During February, the last month of the fiscal year, Be My Valentine Ltd. sells $20,000 of gift cards. From experience, management estimates that 8% of the gift cards sold will not be redeemed by customers. In March, $2,000 of these cards is redeemed for merchandise with a cost of $500. In April, further $15,000 of these cards is redeemed for merchandise with a cost of $5,000. The company uses a perpetual inventory system. Also in February, Be My Valentine had $1,000 of unused gift cards that were over one year old and were not expected to be used. The amount was in line with the company’s normal breakage and all other gift cards of the same age had been used.

Required

a. Prepare journal entries to record the transactions for February, March, and April.

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?