Question
On January 1, 2019, Loud Company enters into a 2-year contract with a customer for an unlimited talk and 5 GB data wireless plan for
On January 1, 2019, Loud Company enters into a 2-year contract with a customer for an unlimited talk and 5 GB data wireless plan for $70.00 per month. The contract includes a smartphone for which the customer pays $299.00. Loud also sells the smartphone and monthly service plan separately, charging $659.00 for the smartphone and $70.00 for the monthly service for the unlimited talk and 5 GB data wireless plan. On July 1, 2019, the customer realizes that she needs less data in her wireless plan and downgrades to the unlimited talk and 2 GB data plan for the remaining term of the contract (18 months). The unlimited talk and 2 GB data plan is priced at $49.00 per month. The $49.00 per month is Louds current stand-alone price for this plan that is available to all customers.
Required:
1. | How should Loud account for this contract modification? |
2. | Provide Louds new monthly revenue recognition journal entry. |
1. How should Loud account for this contract modification?
Additional Instruction
The contract modification _________ add goods or services to the arrangement; therefore, this modification _______ be treated as a separate contract. However, to determine the appropriate accounting for the modification, the entity has to assess whether the remaining goods and services (18 months of service) are _________ the goods and services already provided to the customer (handset and 6 months of services). | |
On July 1, the contract receivable has a remaining balance of . $___________ | |
As a result, $_________ the entity has to allocate to the remaining 18 months of service,$______ or per month. |
2. Prepare the journal entry to record the cash received for the monthly service plan on July 1.
General Journal Instructions
PAGE 1
GENERAL JOURNAL
DATE | ACCOUNT TITLE | POST. REF. | DEBIT | CREDIT | |
---|---|---|---|---|---|
1 |
|
|
|
|
|
2 |
|
|
|
|
|
3 |
|
|
|
|
|
.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started