Question

Sky Communcations (SKY) usually sells a cell phone for $282 plus 12 months of cellular service for $658. SKY has a special, time-limited offer in which it gives the phone for free and sells the 12 months of cellular service for $480. Each phone costs SKY $190, which it accounts for in its perpetual inventory system. On July 1, SKY sells one of the special packages, delivers the phone, collects the $480 cash, and starts the cellular service.

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

1. Record reciept of cash.

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

3. Record the cost of goods sold.

4. Record the deferred revenue.

Answer 1