In 2019, its first year of operations, Regal Department Store sells $250,000 of gift certificates redeemable for store merchandise that expire one year after their issuance. With a high degree of certainty, Regal believes 10% of the gift certificates will not be redeemed. By the end of 2019, $200,000 of gift certificates had been redeemed.

Required:

1. Complete the required journal entries for the gift certificate activity.

A. Prepare the entry to record the sale of gift certificates.

B. Prepare the entry to record the sale of merchandise with payment using gift certificates.

C. Prepare the entry to recognize breakage revenue for the year.

1. In its December 31, 2019, balance sheet, what amount should Regal report as a liability for unused gift certificates?