Required: For each of the following scenarios, determine if a separate contract is created by the modification and describe the accounting for revenue recognition. a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a price of $1,250 each which is equal to the estimated stand-alone selling price for the cartridges. b. Entity Suppliers agrees to increase the number of cartridges by 50 units at the original contract price of $1,000 each which is significantly below the estimated stand-alone selling price for the cartridges. c. Same as (b) except Entity Suppliers determines the contract price of $1,000 is equal to the estimated stand-alone selling price for the cartridges after giving consideration to any adjustments that would be made based on the facts and circumstances.
Required: For each of the following scenarios, determine if a separate contract is created by the modification and describe the accounting for revenue recognition. a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a price of $1,250 each which is equal to the estimated stand-alone selling price for the cartridges. b. Entity Suppliers agrees to increase the number of cartridges by 50 units at the original contract price of $1,000 each which is significantly below the estimated stand-alone selling price for the cartridges. c. Same as (b) except Entity Suppliers determines the contract price of $1,000 is equal to the estimated stand-alone selling price for the cartridges after giving consideration to any adjustments that would be made based on the facts and circumstances.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
![Required:
For each of the following scenarios, determine if a separate contract is created by the modification and describe the
accounting for revenue recognition.
a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a
price of $1,250 each which is equal to the estimated stand-alone selling price
for the cartridges.
b. Entity Suppliers agrees to increase the number of cartridges by 50 units at the
original contract price of $1,000 each which is significantly below the
estimated stand-alone selling price for the cartridges.
c. Same as (b) except Entity Suppliers determines the contract price of $1,000 is
equal to the estimated stand-alone selling price for the cartridges after giving
consideration to any adjustments that would be made based on the facts and
circumstances.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2db88682-90e3-467c-a442-f079115a326b%2F32feb07c-fedd-43f0-962e-261bfa5a252d%2Fhr128wq_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Required:
For each of the following scenarios, determine if a separate contract is created by the modification and describe the
accounting for revenue recognition.
a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a
price of $1,250 each which is equal to the estimated stand-alone selling price
for the cartridges.
b. Entity Suppliers agrees to increase the number of cartridges by 50 units at the
original contract price of $1,000 each which is significantly below the
estimated stand-alone selling price for the cartridges.
c. Same as (b) except Entity Suppliers determines the contract price of $1,000 is
equal to the estimated stand-alone selling price for the cartridges after giving
consideration to any adjustments that would be made based on the facts and
circumstances.
![Entity Suppliers contracts with its customer to deliver an imaging device and 50 replacement cartridges to be used
with the device. The contract price for the device is $100,000, and the cartridges, which are expected to be
delivered over six months, are priced at $1,000 each. The stand-alone selling price for the device is $100,000, and
the stand-alone selling price for each replacement cartridge is $1,250. The allocation of the transaction price based
on the relative selling prices is as follows:
Imaging device
Cartridges
Standalone selling
price
$100,000
62,500
$162,500
% of total
61,5%
38.5%
100%
Allocation of the
contract prices
$92,250
57,750
$150,000
After Entity Suppliers has delivered the imaging device and 40 cartridges, the parties agree to modify the contract
to increase the total number of cartridges.
Required:
For each of the following scenarios, determine if a separate contract is created by the modification and describe the
accounting for revenue recognition.
a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a
price of $1,250 each which is equal to the estimated stand-alone selling price
for the cartridges](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2db88682-90e3-467c-a442-f079115a326b%2F32feb07c-fedd-43f0-962e-261bfa5a252d%2Fw55xl7f_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Entity Suppliers contracts with its customer to deliver an imaging device and 50 replacement cartridges to be used
with the device. The contract price for the device is $100,000, and the cartridges, which are expected to be
delivered over six months, are priced at $1,000 each. The stand-alone selling price for the device is $100,000, and
the stand-alone selling price for each replacement cartridge is $1,250. The allocation of the transaction price based
on the relative selling prices is as follows:
Imaging device
Cartridges
Standalone selling
price
$100,000
62,500
$162,500
% of total
61,5%
38.5%
100%
Allocation of the
contract prices
$92,250
57,750
$150,000
After Entity Suppliers has delivered the imaging device and 40 cartridges, the parties agree to modify the contract
to increase the total number of cartridges.
Required:
For each of the following scenarios, determine if a separate contract is created by the modification and describe the
accounting for revenue recognition.
a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a
price of $1,250 each which is equal to the estimated stand-alone selling price
for the cartridges
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