Question
On January 10th, 2020, Babson Manufacturing agrees to a contract to sell 600 custom printed T- shirts for $6,000 in total to John Company. The
On January 10th, 2020, Babson Manufacturing agrees to a contract to sell 600 custom printed T- shirts for $6,000 in total to John Company. The per unit cost of each T-shirt is $3 and Babson uses perpetual inventory system. Babson is expected to deliver the T-shirts to John starting on May 1st and ending in December 31st,2020. On December 1, 2020 after 500 T-shirts have been delivered, Babson Manufacturing AND John Company modified the agreement to include an additional 300 distinct T-shirts for $9,000 in total. 200 of these T-shirts to be delivered to John by the end of December 2020. On December 1st, 2020, the per unit price of additional T-shirts ordered reflect their stand-alone selling prices to other customers. The per unit cost of each additional T-shirt is $5.
Please answer the following questions.
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Please indicate if this modification causes a separate contract or not? Explain your
reasoning.
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Please calculate the revenue that Babson has to recognize in December 2020? (Assume that revenue is received in cash.)
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Please make the journal entry or entries necessary in December 2020 for the revenue recognition of Babson.
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