Entity Suppliers contracts with its customer to deliver an imaging device and 50 replacement cartridges to...

 

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Entity Suppliers contracts with its customer to deliver an imaging device and 50 replacement cartridges to be used with the device. The contract price for the device is $100,000, and the cartridges, which are expected to be delivered over six months, are priced at $1,000 each. The stand-alone selling price for the device is $100,000, and the stand-alone selling price for each replacement cartridge is $1,250. The allocation of the transaction price based on the relative selling prices is as follows: Imaging device Cartridges Standalone selling price $100,000 62,500 $162,500 % of total 61.5% 38.5% 100% Allocation of the contract prices $92,250 57,750 $150,000 After Entity Suppliers has delivered the imaging device and 40 cartridges, the parties agree to modify the contract to increase the total number of cartridges. Required: For each of the following scenarios, determine if a separate contract is created by the modification and describe the accounting for revenue recognition. a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a price of $1,250 each which is equal to the estimated stand-alone selling price for the cartridges. b. Entity Suppliers agrees to increase the number of cartridges by 50 units at the original contract price of $1,000 each which is significantly below the estimated stand-alone selling price for the cartridges. c. Same as (b) except Entity Suppliers determines the contract price of $1,000 is equal to the estimated stand-alone selling price for the cartridges after giving consideration to any adjustments that would be made based on the facts and circumstances. Entity Suppliers contracts with its customer to deliver an imaging device and 50 replacement cartridges to be used with the device. The contract price for the device is $100,000, and the cartridges, which are expected to be delivered over six months, are priced at $1,000 each. The stand-alone selling price for the device is $100,000, and the stand-alone selling price for each replacement cartridge is $1,250. The allocation of the transaction price based on the relative selling prices is as follows: Imaging device Cartridges Standalone selling price $100,000 62,500 $162,500 % of total 61.5% 38.5% 100% Allocation of the contract prices $92,250 57,750 $150,000 After Entity Suppliers has delivered the imaging device and 40 cartridges, the parties agree to modify the contract to increase the total number of cartridges. Required: For each of the following scenarios, determine if a separate contract is created by the modification and describe the accounting for revenue recognition. a. Entity Suppliers agrees to increase the number of cartridges by 50 units at a price of $1,250 each which is equal to the estimated stand-alone selling price for the cartridges. b. Entity Suppliers agrees to increase the number of cartridges by 50 units at the original contract price of $1,000 each which is significantly below the estimated stand-alone selling price for the cartridges. c. Same as (b) except Entity Suppliers determines the contract price of $1,000 is equal to the estimated stand-alone selling price for the cartridges after giving consideration to any adjustments that would be made based on the facts and circumstances.

Answer rating: 100% (QA)

A contract modification is a change in scope and price of a contract An entity shall account for a contract modification as a separate contract if both of the following conditions are present a the sc... View the full answer