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Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its custom $196,000 per year is the standalone selling price for one year of maintenance se parties agree to modify the maintenance contract as follows: (1) the fee for the t the contract is extended for an additional two years for $280,000 ($140,000 per one year of service at the time of modification is $168,000. Maintenance fees ar

Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its custom $196,000 per year is the standalone selling price for one year of maintenance se parties agree to modify the maintenance contract as follows: (1) the fee for the t the contract is extended for an additional two years for $280,000 ($140,000 per one year of service at the time of modification is $168,000. Maintenance fees ar

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its customer for $588,000 ($196,000 per year). $196,000 per year is the standalone selling price for one year of maintenance service. At the end of the second year, both parties agree to modify the maintenance contract as follows: (1) the fee for the third year is reduced to $154,000, and (2) the contract is extended for an additional two years for $280,000 ($140,000 per year). The standalone selling price for one year of service at the time of modification is $168,000. Maintenance fees are billed annually by Traders Inc. Answer the following questioins, rounding each answer to the nearest whole dollar. a. Record Traders Inc.'s journal entry to recognize revenue for each of the first two years of the contract. Assume that the contract price was paid in cash. Account Name CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Year one entry. CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A CashAccounts ReceivableDue from Consigneelnventory Prepaid Expense Contract AssetPrepaid Advertising ExpenseAccounts PayableConsideration Payable Deferred RevenueSales RevenueService RevenueCommission RevenueCost of goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Year two entry. b. Record Traders Inc.'s journal entry to recognize revenue for each of the years three through five of the contract, taking into account the contract modification. Account Name CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration Payable Deferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Dr.Cr. CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Year three through year five entry. Dr.Cr.
Transcribed Image Text:Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its customer for $588,000 ($196,000 per year). $196,000 per year is the standalone selling price for one year of maintenance service. At the end of the second year, both parties agree to modify the maintenance contract as follows: (1) the fee for the third year is reduced to $154,000, and (2) the contract is extended for an additional two years for $280,000 ($140,000 per year). The standalone selling price for one year of service at the time of modification is $168,000. Maintenance fees are billed annually by Traders Inc. Answer the following questioins, rounding each answer to the nearest whole dollar. a. Record Traders Inc.'s journal entry to recognize revenue for each of the first two years of the contract. Assume that the contract price was paid in cash. Account Name CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Year one entry. CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A CashAccounts ReceivableDue from Consigneelnventory Prepaid Expense Contract AssetPrepaid Advertising ExpenseAccounts PayableConsideration Payable Deferred RevenueSales RevenueService RevenueCommission RevenueCost of goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Year two entry. b. Record Traders Inc.'s journal entry to recognize revenue for each of the years three through five of the contract, taking into account the contract modification. Account Name CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract Asset Prepaid Advertising ExpenseAccounts PayableConsideration Payable Deferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Dr.Cr. CashAccounts ReceivableDue from Consigneelnventory Prepaid ExpenseContract AssetPrepaid Advertising ExpenseAccounts PayableConsideration PayableDeferred RevenueSales RevenueService RevenueCommission RevenueCost of Goods SoldAdvertising Expenselnterest ExpenseSales Commission ExpenseN/A Year three through year five entry. Dr.Cr.
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