JustKitchens Inc. provides services to restaurants and hotels. The company supplies paper products, tableware, cookware, restaurant and kitchen equipment, and cleaning supplies. On January 2, 2017, Just- Kitchens enters into a contract with a local restaurant chain to provide its services for 3 years at a cost of $10,000 per year. The restaurant chain pays the total contract fee on January 2, 2017. JustKitchens's stand-alone selling price is also $10,000 per year.

After 2 years, the restaurant asks to modify the contract. On January 2, 2019, the companies agree to reduce the fee for the third year to $9,000 in exchange for extending the contract for 2 additional years at a fee of $11,000 per year. This modification is agreed to by both parties, and on that date the restaurant chain pays for the additional 2 years of service and deducts $1,000 for the adjustment to the original contract. The $11,000 fee for the additional years is the same as JustKitchens's stand-alone price.

Required:1. How should JustKitchens account for the contract modification?

2. Prepare the journal entries that JustKitchens would make over the life of the contract.

CHART OF ACCOUNTS

JustKitchens Inc.

General Ledger

ASSETS

111 Cash

121 Accounts 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 Service 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 that JustKitchens would make over the life of the contract. Assume all annual year-end entries are made on December 31. Additional Instruction

Question not attempted.

GENERAL JOURNAL

Score: 0/183

DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT

1

2

3

4