Mozart Music Co. began operations in December of 2009. The company sold gift certificates during December in various amounts totaling $1,600. The gift certificates are redeemable for merchandise within 3 years of the purchase date. However, experience within the industry predicts that 90% of gift certificates will be redeemed within one year. Certificates totaling $500 were presented for redemption during 2009 as part of merchandise purchases having a total retail price of $750.
Required:
(1.) Determine the liability for gift certificates to be reported in the December 31, 2009, balance sheet.
(2.) What is the appropriate classification (current or noncurrent) of the liabilities at December 31, 2009? Show calculations.

Question

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The Answer of Mozart Music Co. began operations in December of 2009. The company sold gift certificates during December in various amounts totaling $1,600. The gift certificates are redeemable for merchandise within 3 years of the purchase date. However, experience within the industry predicts that 90% of gift certificates will be redeemed within one year. Certificates totaling $500 were presented for redemption during 2009 as part of merchandise purchases having a total retail price of $750.
Required:
(1.) Determine the liability for gift certificates to be reported in the December 31, 2009, balance sheet.
(2.) What is the appropriate classification (current or noncurrent) of the liabilities at December 31, 2009? Show calculations.