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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.

  1. Please indicate if this modification causes a separate contract or not? Explain your

    reasoning.

  2. Please calculate the revenue that Babson has to recognize in December 2020? (Assume that revenue is received in cash.)

  3. Please make the journal entry or entries necessary in December 2020 for the revenue recognition of Babson.

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