Hospital Equipment Company (HEC) acquired several fMRI machines for its inventory at a cost of $2,700 per machine. HEC usually sells these machines to hospitals at a price of $6,240. HEC also separately sells 12 months of training and repair services for fMRI machines for $1,560. HEC is paid $6,240 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 repair service.

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 Journal Entry Required" in the first account field.)

Answer and Explanation:

The Journal entries are shown below:-

1. Cash Dr, $6,240

To Unearned Revenue $6,240

(Being cash received from the customer for sale is recorded)

For recording this we debited the cash as it increased the assets and credited the unearned revenue as it also increased the liabilities

2. Unearned Revenue Dr, $4,992

To Sales Revenue $4,992

(Being unearned revenue is recorded)

For recording this we debited the unearned revenue as it decreased the liability and credited the sales revenue as it increased the revenue

Working Note:-

Revenue allocated to equipment sale = Total selling price * Standalone selling price of equipment : Combine standalone selling price

= $6,240 * $6,240 : ($6,240 + $1,560)

= $4,992

(Being sales revenue for equipment sale is recorded)

3. Cost of goods sold Dr, $2,700

To Merchandise Inventory $2,700

(Being cost of goods sold is recorded)

For recording this we debited the cost of goods sold as it increased the expenses and credited the merchandise inventory as it decreased the asset