Traders Inc. enters into a three-year office maintenance contract with its customer for $882,000 ($294,000 per year). $294,000 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 $231,000, and (2) the contract is extended for an additional two years for $420,000 ($210,000 per year). The standalone selling price for one year of service at the time of modification is $252,000. Maintenance fees are billed annually by Traders Inc. 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 Dr. Cr. Answer Answer Answer Answer Answer Answer Year one entry. Answer Answer Answer Answer Answer Answer 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. Note: Round your answers to the nearest dollar. Account Name Dr. Cr. Answer Answer Answer Answer Answer Answer Year three through year five entry.
Recording Revenue Under a Contract Modification
Traders Inc. enters into a three-year office maintenance contract with its customer for $882,000 ($294,000 per year). $294,000 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 $231,000, and (2) the contract is extended for an additional two years for $420,000 ($210,000 per year). The standalone selling price for one year of service at the time of modification is $252,000. Maintenance fees are billed annually by Traders Inc.
a. Record Traders Inc.’s
| Account Name | Dr. | Cr. |
|---|---|---|
| Answer |
| Answer | Answer |
| Answer |
| Answer | Answer |
| Year one entry. | |
| Answer |
| Answer | Answer | |
| Answer |
| Answer | Answer |
| 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.
Note: Round your answers to the nearest dollar.
| Account Name | Dr. | Cr. |
|---|---|---|
| Answer |
| Answer | Answer |
| Answer |
| Answer | Answer |
| Year three through year five entry. |
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