When a company delivers a product or service for which a customer has previously

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.

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