When a company delivers a product or service for which a customer has previously
ID: 2389085 • Letter: W
Question
When a company delivers a product or service for which a customer has previously paid, the company records the following:a. A debit to a revenue account and a credit to a liability account.
b. A debit to a revenue account and a credit to an asset account.
c. A debit to an asset account and a credit to a revenue account.
d. A debit to a liability account and a credit to a revenue account.
Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:
a. When the equipment is sold.
b. When the repairs are performed.
c. When payments are made to the service firm.
d. Evenly over the life of the warranty.
Explanation / Answer
When a company delivers a product or service for which a customer has previously paid, the company records the following:
a. A debit to a revenue account and a credit to a liability account.
b. A debit to a revenue account and a credit to an asset account.
c. A debit to an asset account and a credit to a revenue account.
d. A debit to a liability account and a credit to a revenue account.
Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:
a. When the equipment is sold.
b. When the repairs are performed.
c. When payments are made to the service firm.
d. Evenly over the life of the warranty.