Bavarian Bar and Grill opened for business in November 2011. During its first two months of oepration,the restaurant sold gift certificates in various amounts totaling $5,200, mostly as Chirstmas presents. They are redeemable for means within two years of the purchase date, although experience within the industry indicates that 80% of gift certificates are redeemed within one year. Certificates totaling $1,300 were presented for redemption during 2011 for meals having a total price of $2,100. The sales tax rate on restaurant sales is 4%, assessed at the time meals (not gift certificates) are purchased. Sales taxes will be remitted in January.
Required:
Prepapre the appropriate journal entries (in summary form) for the gift certificates sold during 2011 (keeping in mind that, in actuality, each sale of a gift certificate or a meal would be recorded individually).
Determine the liabiltiy for gift certificates to be reported on the December 31, 2011, belance sheet.
What is the appropriate classification (current or noncurrent) of the liabilties at December 31, 2011? Why?