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Hospital Equipment Company (HEC) acquired several fMRI machines for its inventory at a cost of $3,200 per machine. HEC usually sells these machines to hospitals at a price of $6,640. HEC also separately sells 12 months of training and repair services for fMRI machines for $1,660. HEC is paid $6,640 cash on November 30 for the sale of an fMRI machine delivered on December 1. HEC sold the machine at its regular price, but included one year of free training and repain service.

A. For the machine sold at its regular price, but with one year of "free" training and repair service, determine the dollar amount of revenue earned from the equipment sale versus the revenue earned from the training and repair services.

Equipment: ______

Service: ______

B. Prepare journal entries would HEC record on November 30 and December 1? (Assume HEC uses a perpetual inventory system for recording the cost of goods sold.) (If no entry is required for a transaction/event, select "No Jounral Entry Required" in the first account field.)

1. Record the receipt of cash.

2. Record the sales revenues for the training and repair service.

3. Record the cost of goods sold.

Answer 1

The solution is given below.

Step-by-step explanation:

(A). According to the scenario, the computation of the given data are as follows:

Price of equipment = $6,640

Price of training of repair and service = $1,660

Total price for equipment and training = $6,640

So, we can calculate the revenue by using following formula:

Revenue of equipment = Total price for equipment and training × Price of equipment ÷ Price of equipment + Price of training

= $6,640 × $6,640 ÷ ($6,640 + $1,660)

= $5,312

Revenue of service = Total price for equipment and training × Price of training ÷ Price of equipment + Price of training

= $6,640 × $1,660 ÷ ($6,640 + $1,660)

= $1,328

(B) Journal entry.

1.

Nov.30 Cash A/c Dr $6,640

To Revenue unearned A/c $6,640

(Being cash received is recorded)

2.

Dec.1 Revenue unearned A/c Dr $5,312

To Sales revenue A/c $5,312

(Being sales revenue is recorded)

3.

Dec.1 Cost of goods sold A/c Dr $3,200

To Inventory A/c $3,200

(Being cost of goods sold is recorded)