Diamond Depot sold $ 57,000 of gift cards during the current year, and received cash. Diamond uses the proportional method for accounting for gift card breakage. Based on historical experience, it estimates a breakage percentage of 12% of its gift card sales. During the year, customers redeemed $ 46,300 of gift cards, purchasing inventory costing $ 28,000. The company uses a perpetual inventory system.
Required
a. Prepare the journal entries required to record the gift card activity.
b. What is the end- of- year liability for gift cards if the liability for gift cards was $ 15,500 at the beginning of the year?