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 $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 1,2019 , 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 2GB data plan is priced at $55 per month. The $55 per month is Loud's current standalone price for this plan that is available to all customers. Required: 1. How should Loud account for this contract modification? 2. Provide Loud's new monthly revenue recognition journal entry. 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 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 EQUITY 311 Common Stock 331 Retained Earnings 1. How should Loud account for this contract modification? 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 X. As a result, the entity has X to allocate to the remaining 18 months of service, or X per month. 2. Prepare the journal entry to record the cash received for the monthly service plan on July 1. 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 $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 1,2019 , 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 2GB data plan is priced at $55 per month. The $55 per month is Loud's current standalone price for this plan that is available to all customers. Required: 1. How should Loud account for this contract modification? 2. Provide Loud's new monthly revenue recognition journal entry. 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 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 EQUITY 311 Common Stock 331 Retained Earnings 1. How should Loud account for this contract modification? 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 X. As a result, the entity has X to allocate to the remaining 18 months of service, or X per month. 2. Prepare the journal entry to record the cash received for the monthly service plan on July 1