Question: Escargot Inc. is a 5-star restaurant in Cincinnati. The restaurant sells 500 gift cards during January 2017. Each gift card has a face value of $300. The gift cards never expire, although based on industry experience, Escargot expects that 12% of the balances will never be redeemed. During February 2017, $45,000 of gift cards are redeemed, and in March 2017 another $80,000 is redeemed.
Required: 1. Prepare journal entries for Escargot's gift card transactions for January through March.
2. Assume that at the end of March, due to the popularity of the restaurant, Escargot reduces its estimate of the amount of gift cards that will go unused to 8%. During April, gift cards worth $10,000 are used. Prepare any necessary journal entries.
CHART OF ACCOUNTS
Escargot Inc.
General Ledger
|
ASSETS |
| 111 |
Cash |
| 121 |
Accounts Receivable |
| 141 |
Inventory |
| 152 |
Prepaid Insurance |
| 181 |
Equipment |
| 198 |
Accumulated Depreciation |
|
LIABILITIES |
| 211 |
Accounts Payable |
| 231 |
Salaries Payable |
| 250 |
Unearned Revenue |
| 261 |
Income Taxes Payable |
|
EQUITY |
| 311 |
Common Stock |
| 331 |
Retained Earnings |
|
REVENUE |
| 411 |
Sales Revenue |
|
EXPENSES |
| 500 |
Cost of Goods Sold |
| 511 |
Insurance Expense |
| 512 |
Utilities Expense |
| 521 |
Salaries Expense |
| 532 |
Bad Debt Expense |
| 540 |
Interest Expense |
| 541 |
Depreciation Expense |
| 559 |
Miscellaneous Expenses |
| 910 |
Income Tax Expense |