Ask Question
21 September, 21:50

Sky Communications (SKY) usually sells a cell phone for $448 plus 12 months of cellular service for $672. SKY has a special, time-limited offer in which it gives the phone for free and sells the 12 months of cellular service for $560. Each phone costs SKY $280, which it accounts for in its perpetual inventory system. On July 1, SKY sells one of the special packages, delivers the phone, collects the $560 cash, and starts the cellular service.

What journal entries would SKY record on July 1 and July 31?

a. Record receipt of cash.

b. Record the sales of cellular service for 12 months.

c. Record the cost of goods sold.

d. Record the deferred revenue.

+1
Answers (1)
  1. 21 September, 22:43
    0
    The Journal Entry from July 1 and July 31 is shown below:-

    1. Cash Dr, $560

    To Deferred revenue $560

    (Being cash is received)

    2. Deferred revenue $336

    To Sales revenue $336

    (Being 12 months sales service is recorded)

    3. Cost of goods sold $280

    To Inventory $280

    (Being cost of goods sold is recorded)

    4. Deferred revenue ($336 : 12) $28

    To Service revenue $28

    (Being Deferred service revenue is recorded)

    Working Note:-

    Cellular service revenue = offer price : total cost of phone and service * cellular service

    = (($560 : ($448 + $672)) * $672

    = $336
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “Sky Communications (SKY) usually sells a cell phone for $448 plus 12 months of cellular service for $672. SKY has a special, time-limited ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers