EE Co. sells gift certificates redeemable only when merchandise is purchased. Upon redemption, the entity recognizes the unearned revenue as realized. Information for the current year is as follows:

Gift certificates payable, January 1	260,000
Gift certificates sold	900,000
Gift certificates redeemed	780,000
Gift certificates expected not to be redeemed	40,000
Cost of goods sold	60%

Required:

a) Compute the unearned revenue on December 31

b) Prepare journal entries for the current year.