(Accounting for gift certificates, LO 2, 9) Juno Boutique Inc. (Juno) operates a small chain of fashion boutiques. Juno usually opens its stores in upscale shopping malls in major cities. In 2004 Juno began offering gift certificates for sale to customers. The certificates can be exchanged for any merchandise in Juno’s stores. The certificates cannot be redeemed for cash. During 2004 gift certificates worth

$31,000 were sold. By the end of the year, $12,000 of the gift certificates had been redeemed by customers to purchase merchandise that cost Juno $7,500.

Required:

a. Prepare the journal entry required to record the sale of the gift certificates.

b. Prepare the journal entry required to record the redemption of the gift certificates.

c. How would the unused gift certificates be reported in Juno’s financial statements?

d. What effect does the sale of gift certificates have on Juno’s current ratio?