Sew & More sells sewing machines and sewing supplies. The company recently ran a sales promotion on sewing machines that allowed customers to purchase a new sewing machine using store credit. The terms of the contract stated that customers would make 12 monthly payments that included a 6% annual interest rate. On the date of each sale, Sew & More should record. No revenue until the contract is paid in full. Sales revenue equal to the sales price of the sewing machine, interest revenue equal to the total amount of interest for the contract, and a receivable for the total of the sales price plus the interest. revenue equal to the sales price of the sewing machine plus the total interest to be collected and a receivable for the same amount. revenue equal to the sales price of the sewing machine and a receivable for the same amount.

First option is wrong because revenue should be recorded since it gets accrued upon the making the sale. Third option is wrong because receivable should include both accounts receivable in respect of sale and interest. Fourth option is wrong because interest revenue and interest receivable are also needed to be accounted for. Upon making the sales, income should be updated with sale revenue and interest revenue and the receivable should be updated with accounts receivable in respect of sales and interest receivable in respect of accrued interest income. Hence, the answer is the second option stating "Sales revenue equal to the sales price of the sewing machine, interest revenue equal to the total amount of interest for the contract, and a receivable for the total of the sales price plus the interest."

Answered: On the date of each sale, Sew & More…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sew & More sells sewing machines and sewing supplies. The company recently ran a sales promotion on sewing machines that allowed customers to purchase a new sewing machine using store credit. The terms of the contract stated that customers would make 12 monthly payments that included a 6% annual interest rate. On the date of each sale, Sew & More should record.

No revenue until the contract is paid in full.
Sales revenue equal to the sales price of the sewing machine, interest revenue equal to the total amount of interest for the contract, and a receivable for the total of the sales price plus the interest.
revenue equal to the sales price of the sewing machine plus the total interest to be collected and a receivable for the same amount.
revenue equal to the sales price of the sewing machine and a receivable for the same amount.

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