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Q5-7TI

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Horngren'S Financial And Managerial Accounting
Found in: Page 274

Short Answer

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.

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

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Step by Step Solution

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.

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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