Question
Question 7 Recording Revenue Under a Contract Modification Traders Inc. enters into a three-year office maintenance contract with its customer for $672,000 ( $224,000 per
Question 7
Recording Revenue Under a Contract Modification
Traders Inc. enters into a three-year office maintenance contract with its customer for $672,000 ( $224,000 per year, to be paid at the end of each year). The $224,000 per year is the standalone selling price for a year of maintenance service. At the end of the second year, both parties agree to modify the maintenance contract as follows: (1) the fee for the third year is reduced to $176,000 to be paid at the end of Year 3, and (2) the contract is extended to Year 4 and Year 5 for $320,000 ( $160,000 per year, to be paid at the end of each year). The standalone selling price for one year of service at the time of modification is $192,000. Maintenance fees are billed annually by Traders Inc.
Required Answer the following questions, rounding each answer to the nearest whole dollar. Assume any payments due were received in cash. a. Record Traders Inc.s journal entry to recognize revenue for each of the first two years of the contract.
Account Name | Dr. | Cr. | |
---|---|---|---|
Dec. 31, Year 1 | Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | ||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
To record revenue. | |||
Dec. 31, Year 2 | Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | ||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
To record revenue. |
b. Record Traders Inc.s journal entry to recognize revenue for each of the years three through five of the contract, taking into account the contract modification. Assume cash payments.
Account Name | Dr. | Cr. | |
---|---|---|---|
Dec. 31, Year 3 | Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | ||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
To record revenue. |
Account Name | Dr. | Cr. | |
---|---|---|---|
Dec. 31, Year 4 | Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | ||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
To record revenue. |
Account Name | Dr. | Cr. | |
---|---|---|---|
Dec. 31, Year 5 | Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | ||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
Accounts ReceivableCashContract AssetCost of Goods SoldDeferred Service RevenueInventoryService RevenueN/A | |||
To record revenue. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored 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