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Chapter 5: Q5-7TI (page 274)

Click Computers has the following transactions related to the sale of merchandise inventory.

Mar. 1 Sold a computer (cost of \(3,000) for \)8,000 to a customer. The customer paid cash. The sales price included a one-year service contract valued at $168.

Dec. 31 Recorded the amount of service contract earned.

Journalize the transactions for Click Computers assuming that the company uses the perpetual inventory system.

Short Answer

Expert verified

The total of debits and credits for the journal is $11,336.

Step by step solution

01

Meaning of Service Contract

In business terms, a service contract denotes an agreement between a consumer and a business entity in which the maintenance and service of the equipment are covered over a specified period.

02

Preparation of journal entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

Mar 1

Cash

8,168

Service revenue

8,000

Unearned revenue

168

(Cash sales including one-year service contract)

Mar 1

Cost of goods sold

3,000

Inventory

3,000

(Recorded the cost of goods sold)

Dec 31

Unearned revenue

168

Service revenue

168

(Service revenue earned)

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Most popular questions from this chapter

Journalize the following transactions that occurred in September 2018 for Aquamarines. No explanations are needed. Identify each accounts payable and accounts receivable with the vendor or customer name. Aquamarines estimates sales returns at the end of each month.

Sep. 3 Purchased merchandise inventory on account from Sharpner Wholesalers, \(5,500. Terms 2/15, n/EOM, FOB shipping point.

4 Paid freight bill of \)85 on September 3 purchase.

4 Purchased merchandise inventory for cash of \(1,600.

6 Returned \)1,300 of inventory from the September 3 purchase.

8 Sold merchandise inventory to Herman Company, \(5,700, on account. Terms 2/15, n/35. Cost of goods, \)2,565.

9 Purchased merchandise inventory on account from Tucker Wholesalers, \(6,000. Terms 3/10, n/30, FOB destination.

10 Made payment to Sharpner Wholesalers for goods purchased on September 3, less return and discount.

12 Received payment from Herman Company, less discount.

13 After negotiations, I received a \)500 allowance from Tucker Wholesalers.

15 Sold merchandise inventory to Jerome Company, \(2,800, on account. Terms n/EOM. Cost of goods, \)1,200.

22 Made payment, less allowance, to Tucker Wholesalers for goods purchased on September 9.

23 Jerome Company returned \(200 of the merchandise sold on September 15. Cost of goods, \)80.

25 Sold merchandise inventory to Small for \(1,800 on account that cost \)738. Terms of 3/10, n/30 was offered, FOB shipping point. As a courtesy to Small, $40 of freight was added to the invoice, for which Aquamarines paid cash.

29 Received payment from Small, less discount.

30 Received payment from Jerome Company, less return.

How is gross profit calculated, and what does it represent?

What is a merchandiser, and what is the name of the merchandise that it sells?

The adjusted trial balance of Quality Office Systems at March 31, 2018, follows:

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