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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

What is the Cost of Goods Sold (COGS), and where is it reported?

Consider the following transactions for Burlington Drug Store:

Feb. 2 Burlington buys \(23,800 worth of inventory on account with credit terms of 2/15, n/30, FOB shipping point.

4 Burlington pays a \)50 freight charge.

9 Burlington returns $5,200 of the merchandise due to damage during shipment.

14 Burlington paid the amount due, less return and discount.

Requirements

1. Journalize the purchase transactions. Explanations are not required.

2. In the final analysis, how much did the inventory cost Burlington Drug Store?

Journalize the following transactions for Master Bicycles using the periodic inventory system. Explanations are not required.

Nov. 2 Purchased \(3,400 of merchandise inventory under terms 2/10, n/EOM, and FOB shipping point.

6 Returned \)800 of defective merchandise purchased on November 2.

8 Paid freight bill of \(100 on November 2 purchase.

10 Sold merchandise inventory on account for \)6,100. Payment terms were 3/15, n/45.

11 Paid amount owed on credit purchase of November 2, less the return and the discount.

22 Received cash from November 10 customer in full settlement of their debt, less the discount.

Suppose Muddyriver.com sells 2,000 books on account for \(19 each (cost of these books is \)22,800), credit terms 1/20, n/45 on October 10, to The Salem Store. The Salem Store paid the balance to Muddyriver.com on October 22.

Requirements

1. Journalize the Salem Store’s October transactions.

2. Journalize Muddyriver.com’s October transactions. Assume Muddyriver.com uses the gross method to record sales revenue.

Highlight the differences in the closing process when using the periodic inventory system rather than the perpetual inventory system.
See all solutions

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