Yankee Corp. agrees to provide Albany Company 24 months of coaching services. The contract sets the price at $4,000 per month, which is the normal stand-alone price that Yankee charges. After 16 months, Yankee and Albany agree to modify the contract. Yankee reduces the fee for the 8 remaining months to $3,800 per month, and Albany agrees to a 24-month extension at a cost of $3,600 per month. At the time that the contract is modified, Yankee is charging other customers $3,750 per month for the coaching service. Should Yankee and Albany treat the modification as a separate contract?
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- On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.arrow_forwardRothbart Manufacturing agrees to manufacture bumper cars for Banners Amusement Parks. Under the terms of the contract, Banners will pay Rothbart a total of $78,000, and Banners can cancel the contract if it so chooses but must pay Rothbart for work completed. Rothbart believes that, if Banners cancelled the contract, Rothbart could sell the bumper cars to another amusement park and still make a profit. The manufacturing contract is expected to last six months, and as of December 31, 2024, the job is 80% complete. How much revenue should Rothbart recognize in 2024 for this contract? Multiple Choice $0 O $78,000 $15,600 $62,900arrow_forwardMarin Construction Inc. agrees to construct a boat dock at the Smooth Sailing Marina for $32,400. In addition, under the terms of the contract, Smooth Sailing will pay Marin a performance bonus of up to $12,000 based on the timing of completion. The performance bonus will be paid fully if construction is completed by the agreed-upon date. The performance bonus decreases by $2,400 per week for every week beyond the agreed-upon completion date. Marin has constructed a number of boat docks under similar agreements. Marin’s management estimates, that it has a 60% probability of completing the project on time, a 20% probability of completing the project one week late, and a 20% probability of completing the project two weeks late. Management does not believe the project will be more than two weeks late.Determine the transaction price that Marin should compute for this agreement.arrow_forward
- Orange Corp enters into a non-cancellable contract with Coles Ltd to supply 200,000 units of goods on an annual basis for $3 per unit for three years. At the beginning of the third year, Orange and Coles agree to renegotiate the contract because the market price for the goods has declined. Under the modified agreement, the parties agree to extend the contract for an additional year (same fixed annual quantity) and reduce the price per unit to $2 for the remaining 400,000 units of goods to be delivered. As part of the contract modification, Orange Corp also agrees to make a non-refundable payment of $20,000 to Coles Ltd to compensate for the changes it needs to make to its shelving to accommodate the goods purchased from Orange Corp. There is no dispute between the parties regarding prior performance, and both parties have performed according to the terms of the contract. Orange determines that the remaining goods are distinct from those previously delivered and concludes that the…arrow_forwardLemon Ltd. offers executive training seminars using, in part, recorded lectures of a well-known speaker. The agreement calls for Lemon to pay a royalty for the use of the lectures. The lecturer's agent offers Lemon two options. The first option is revenue-based and Lemon agrees to pay 25 percent of its revenues to the speaker. The second option is a flat rate of $390,000 annually for the use of the lectures in these seminars. The royalty agreement will run one year and the royalty option chosen cannot be changed during the agreement. All other royalty terms are the same. Lemon charges $1,600 for the seminar and the variable costs for the seminar (excluding any royalty) is $300. Annual fixed costs (excluding any royalties) are $585,000. Required: a. What is the annual break-even level assuming: 1. The revenue-based royalty agreement? 2. The flat-rate royalty agreement? b. At what annual volume would the operating profit be the same regardless of the royalty option chosen? c.…arrow_forwardCommando Corp. agrees to sell 100 of its products to M&H Co. for P30,000 in August 2021. (P300 per product). The goods will be delivered to M&H over the following six months. The contract is updated after 60 merchandises are supplied, and Common offers to provide 80 more things for an extra P21,600 (P270 per station). Commonlo provided an extra 90 goods at the end of the year. All sales are made in cash upon delivery. Consider that the added term is a potential change to the original contract. That however much income will be recognised under the contract in 2021?arrow_forward
- GerrinAL sells five machines to VernAL for $500,000 per machine, the list price for the machines is $600,000. In a separate contract they sell maintenance services on the five machines for the first year. They charge $12,000 per machine for the maintenance, the list price for maintenance on the machine. As an incentive to sign the maintenance contract, GerrinAL gives VernAL a 25% discount on the purchase of machines in the next 75 days. No discounts are granted to other customers and they project there is 41% probability they will use the discount to purchase one machine with a stand-alone selling price of $600,000. What is the approximate contract consideration allocated to the discount? Select one: a. $150,000 b. $120,000 c. zero d. $50,000 e. $61,500arrow_forwardOn January 1, 2020, Gordon Co. enters into a contract to sell a customer a wiring base and shelving unit that sits on the base in exchange for $3,000. The contract requires delivery of the base first but states that payment for the base will not be made until the shelving unit is delivered. Gordon identifies two performance obligations and allocates $1,200 of the transaction price to the wiring base and the remainder to the shelving unit. The cost of the wiring base is $700; the shelves have a cost of $320. Instructions a. Prepare the journal entry on January 1, 2020, for Gordon. b. Prepare the journal entry on February 5, 2020, for Gordon when the wiring base is delivered to the customer. c. Prepare the journal entry on February 25, 2020, for Gordon when the shelving unit is delivered to the customer and Gordon receives full payment.arrow_forwardJeff Heun, president of Bridgeport Always, agrees to construct a concrete cart path at Dakota Golf Club. Bridgeport Always enters into a contract with Dakota to construct the path for $181,000. In addition, as part of the contract, a performance bonus of $39,600 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $9,900 per week for every week beyond the agreed-upon completion date. Jeff has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. Jeff estimates, given the constraints of his schedule related to other jobs, that there is 60% probability that he will complete the project on time, a 25% probability that he will be 1 week late, and a 15% probability that he will be 2 weeks late. (a) Determine the…arrow_forward
- On January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Lessing, which routinely finances equipment for other firms at an annual Interest rate of 4%. The contract calls for four rent payments of $13,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $97,000 and were expected to have a useful life of five years with no residual value. Both firms record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lesse. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the tabs…arrow_forwardJohn William, president of Crane Always, agrees to construct a concrete cart path at Windsor Golf Club. Crane Always enters into a contract with Windsor to construct the path for $212,000. In addition, as part of the contract, a performance bonus of $46,800 will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $11,700 per week for every week beyond the agreed-upon completion date. John has been involved in a number of contracts that had performance bonuses as part of the agreement in the past. As a result, he is fairly confident that he will receive a good portion of the performance bonus. John estimates, given the constraints of his schedule related to other jobs, that there is 50% probability that he will complete the project on time, a 30% probability that he will be 1 week late, and a 20% probability that he will be 2 weeks late. Determine the transaction price that Crane…arrow_forwardOn January 1, 2021, Nath-Langstrom Services, Inc., a computer software training firm, leased several computers under a two-year operating lease agreement from ComputerWorld Lessing, which routinely finances equipment for other firms at an annual Interest rate of 4%. The contract calls for four rent payments of $13,500 each, payable semiannually on June 30 and December 31 each year. The computers were acquired by ComputerWorld at a cost of $97,000 and were expected to have a useful life of five years with no residual value. Both firma record amortization and depreciation semiannually. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) Required: 1. Prepare appropriate journal entries recorded by Nath-Langstrom Services for the first year of the lease. 2. Prepare appropriate journal entries recorded by ComputerWorld Leasing for the first year of the lease. Complete this question by entering your answers in the tabs…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning