Contract Modification

On January 1, 2017, Loud Company enters into a 2-year contract with a customer for an unlimited talk and 5 GB data wireless plan for $65 per month. The contract includes a smartphone for which the customer pays $299. Loud also sells the smartphone and monthly service plan separately, charging $649 for the smartphone and $65 for the monthly service for the unlimited talk and 5 GB data wireless plan. On July 1, 2017, the customer realizes that she needs a text messaging plan and adds an unlimited text messaging plan for the remaining term of the contract (18 months). The unlimited text messaging plan is priced at $15 per month. This is the current pricing for this plan available to all customers.

Required:

1.	How should Loud account for this contract modification?
2.	Provide Louds new monthly revenue recognition journal entries.

CHART OF ACCOUNTS

Loud Company

General Ledger

	ASSETS
111	Cash
121	Contract Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
198	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare the journal entries to record the new revenue recognition entries on July 1. Additional Instruction

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5