{"id":181733,"date":"2025-01-11T09:56:41","date_gmt":"2025-01-11T09:56:41","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=181733"},"modified":"2025-01-11T09:56:43","modified_gmt":"2025-01-11T09:56:43","slug":"per-company-policy-tools-with-a-purchase-price-greater-than-1000-are-capitalized","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/01\/11\/per-company-policy-tools-with-a-purchase-price-greater-than-1000-are-capitalized\/","title":{"rendered":"Per company policy, tools with a purchase price greater than $1,000 are capitalized"},"content":{"rendered":"\n<ol class=\"wp-block-list\">\n<li>Per company policy, tools with a purchase price greater than $1,000 are capitalized. What&#8217;s the correct entry to record a tool purchase of $500?<\/li>\n<\/ol>\n\n\n\n<p>(A) Debit tools expense $500, credit cash $500<\/p>\n\n\n\n<p>(B) Debit fixed asset $500, credit tools expense $500<\/p>\n\n\n\n<p>(C) Debit fixed asset $500, credit cash $500<\/p>\n\n\n\n<p>(D) Debit fixed asset $1,000, cred it cash $1,000<\/p>\n\n\n\n<p>(E) Debit tools expense $1,000, cred it cash $1,000<\/p>\n\n\n\n<ol start=\"2\" class=\"wp-block-list\">\n<li>A company performs $10,000 of services and issues an invoice to the customer. Using the accrual method. what&#8217;s the cored entry to record the transactions?<\/li>\n<\/ol>\n\n\n\n<p>(A) Debit unearned revenue $10,000, credit salles revenue $10,000<\/p>\n\n\n\n<p>(B) Debit accounts payable $10,000, credit sales revenue $10,000<\/p>\n\n\n\n<p>(C) Debit services expense $10,000, credit sales revenue $10,000<\/p>\n\n\n\n<p>(D) Debit cash $10,000, credit sales revenue $10,000<\/p>\n\n\n\n<p>(E) Debit accounts receivable $10,000, credit salles revenue $10,000<\/p>\n\n\n\n<p><mark style=\"background-color:rgba(0, 0, 0, 0)\" class=\"has-inline-color has-ast-global-color-6-color\"><strong>The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">1. Correct Entry for Tool Purchase of $500:<\/h3>\n\n\n\n<p><strong>Answer: (A) Debit tools expense $500, credit cash $500<\/strong><\/p>\n\n\n\n<p>Explanation:<br>Under the company\u2019s policy, only tools with a purchase price greater than $1,000 are capitalized. Since the cost of the tool in question is $500, it is considered an expense rather than a fixed asset. The correct accounting treatment involves recognizing the $500 as an expense rather than a capitalized asset.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Debit Tools Expense<\/strong>: The purchase price of $500 will be recorded as an expense because it does not meet the capitalization threshold (greater than $1,000).<\/li>\n\n\n\n<li><strong>Credit Cash<\/strong>: Since the purchase was made in cash, a reduction in cash of $500 will be recorded.<\/li>\n<\/ul>\n\n\n\n<p>This ensures that the tool is recognized in the period it was purchased and used, in line with the matching principle of accrual accounting.<\/p>\n\n\n\n<hr class=\"wp-block-separator has-alpha-channel-opacity\"\/>\n\n\n\n<h3 class=\"wp-block-heading\">2. Correct Entry for Service Revenue under the Accrual Method:<\/h3>\n\n\n\n<p><strong>Answer: (E) Debit accounts receivable $10,000, credit sales revenue $10,000<\/strong><\/p>\n\n\n\n<p>Explanation:<br>Under the accrual basis of accounting, revenue is recognized when earned, regardless of when cash is received. Since the company has performed $10,000 of services and issued an invoice to the customer, revenue is considered earned at the time the service is completed, not when the payment is received.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong>Debit Accounts Receivable<\/strong>: The company is entitled to receive the $10,000, but cash has not yet been collected. Therefore, an accounts receivable (an asset account) is debited, recognizing the amount the customer owes.<\/li>\n\n\n\n<li><strong>Credit Sales Revenue<\/strong>: Revenue is earned from the services performed, so the company recognizes $10,000 in sales revenue. According to the revenue recognition principle, this amount is recognized when the service is completed, not when cash is received.<\/li>\n<\/ul>\n\n\n\n<p>This entry follows the matching principle, ensuring that revenues are recognized in the period when earned and properly recorded even though cash has not yet been exchanged.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>(A) Debit tools expense $500, credit cash $500 (B) Debit fixed asset $500, credit tools expense $500 (C) Debit fixed asset $500, credit cash $500 (D) Debit fixed asset $1,000, cred it cash $1,000 (E) Debit tools expense $1,000, cred it cash $1,000 (A) Debit unearned revenue $10,000, credit salles revenue $10,000 (B) Debit accounts [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-181733","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/181733","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=181733"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/181733\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=181733"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=181733"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=181733"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}