Question

Presented below are selected transactions of Lombardino Restaurant for the month ending August 31, 2025.

Lombardino sells 80 gift cards at $75 per gift card and 50 of the gift cards are redeemed by year end. It is estimated that 10 of the gift cards will not be redeemed.
Lombardino accepted a reservation for its private dining room for a rehearsal dinner in September. It received a security deposit of $300, which will be returned after the dinner is held.

Answer 1

The question involves accounting for gift card sales and a security deposit at Lombardino Restaurant, including revenue recognition, unearned revenue, and breakage for unredeemed gift cards based on GAAP.

Step-by-step explanation:

The question pertains to the recognition of revenue related to gift card sales and a security deposit for a future service at Lombardino Restaurant. With the sale of 80 gift cards at $75 each, accounting for them involves understanding revenue recognition principles, as well as the concept of unearned revenue and breakage for the ones not expected to be redeemed. A $300 security deposit received for a reservation is not revenue but a liability since it's an obligation to either provide a service or return the money. In accounting for the redemption and non-redemption of these gift cards, Generally Accepted Accounting Principles (GAAP) should be followed.