On January 1, 2017, Fryer Company enters into a contract to supply 600 pastry frying machines to a regional donut retailer. The machines will be delivered at a rate of 25 machines per month over 2 years at a transaction price of $1,000 per machine. The salesperson received a $36,000 sales commission on the date the contract was signed. The journal entry to record the transaction on January 1 will include a
A) debit Prepaid Sales Commissions for $36,000.
B) debit Sales Commission Expense for $36,000.
C) credit Sales Revenue $600,000.
D) credit Sales Revenue $564,000.

Question

Quizplus · Accepted Answer

The sales commission is a prepaid expense that will be recognized over the period of the contract, so it is initially recorded as a debit to Prepaid Sales Commissions.

On January 1, 2017, Fryer Company Enters into a Contract