Question
Banana Bar and Grill opened for business in November 2016. During its first two months of operation, the restaurant sold gift certificates in various amounts
Banana Bar and Grill opened for business in November 2016. During its first two months of operation, the restaurant sold gift certificates in various amounts totaling $9,200, mostly as Christmas presents. They are redeemable for meals within two years of the purchase date, although experience within the industry indicates that 90% of gift certificates are redeemed within one year. Certificates totaling $2,600 were presented for redemption during 2016 for meals having a total price of $4,400. The sales tax rate on restaurant sales is 5%, assessed at the time meals (not gift certificates) are purchased. Sales taxes will be remitted in January. The amount of liability for gift certificates to be reported on the December 31, 2016, balance sheet should be:
a. $6,600 b. $2,600 c. $4,400 d. $9,200
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