Question

Contract Modification Instructions Chart of Accounts |G General Journal Instructions On January 1, 2017, ForeRunner Inc. enters into a contract with a sporting goods company to provide 100 GPS-enabled watches for $25,000 (S250 per watch) over the next 6 months. On April 1, 2017, when 80 of the watches have been delivered, the contract is modified Required 1. Assume 30, 20, and 30 watches were delivered in January, February, and March, respectively. Prepare Fore- Runner's journal entries to record revenue for each of these months. 2. Assume the contract is modlified to include an additional 40 watches at $205 per watch, which is the standalone selling price on April 1, 2017. Assume that 20 watches are sold to the sporting goods company in April, May and June. Prepare the journal entries to record the watch sales in April, May and June. 3. Assume the contract is modified to include an additional 40 watches at $205 per watch, which does not represent the stand-alone selling price on April 1, 2017. Assume that 20 watches are sold to the sporting goods company in April, May and June. Prepare the journal entries to record the watch sales in April, May and June. 4. Assume that the contract is modified to reduce the price of the remaining 20 watches from the original order of 100 watches to $205 per watch, which is significantly lower than the stand-alone selling price on April 1, 2017. Assume 10, 5 and 5 watches are sold in April, May, and June, respectively. Prepare the journal entries to record the watch sales in April, May and June.

Answer 1

Since the sales has been made than we will recognize the revenue.

Jan

Sporting good company     7500

To sales                                 7500

Feb

Sporting good company                                    5000

To Sales                                                                                5000

March

Sporting good company                                 7500

To Sales                                                                                                7500

The price that is offered to the customer is standalone this means that this price is at discounted rate and is only offered to the specific customer and hence the discount that is allowed is actually the cost to the company hence “Discount allowed” is debited.

April

Discount allowed            900

Sporting good company 4100

To sales                                                                5000

May

Discount allowed            900

Sporting good company 4100

To sales                                                                5000

June

Discount allowed            900

Sporting good company 4100

To sales                                                                5000

Since the price is not the standalone price this means that not discount has been given and the price that is given is actually the original sales revenue

April

Sporting good company 5000

To sales                                                                5000

May

Sporting good company 5000

To sales                                                                5000

June

Sporting good company 5000

To sales                                                                5000

Since the price is lower than the standalone the difference will be the discount that is allowed.

April

Sporting good company        2050

Discount allowed             450

To sales                                                                2500         

may

Sporting good company        1025

Discount allowed             225

To sales                                                                1250                                 

June

Sporting good company        1025

Discount allowed             225

To sales                                                                1250