A grocery store chain and a farmer enter a forward contract for 10,000 bushels of wheat. The contract expires 3 months from today, and the store chain agrees to pay $7.50 per bushel. If the wheat price increases to $8.15 per bushel by contract expiration, calculate profit/loss for each party.
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A grocery store chain and a farmer enter a forward contract for 10,000 bushels of wheat. The contract expires 3 months from today, and the store chain agrees to pay $7.50 per bushel.
If the wheat price increases to $8.15 per bushel by contract expiration, calculate
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- Markson and Sons leases a copy machine with terms that include a fixed fee each month of $500 plus a charge for each copy made. The company uses the high-low method to analyze costs. If Markson paid $360 for 5,000 copies and $280 for 3,000 copies, how much would Markson pay if it made 7,500 copies?On January 1, a flower shop contracts with customers to provide flowers for their wedding on June 2. The total contract price is $3,000, payable in equal installments for the next six months on the first of each month (with the first payment due January 1). How much will be recorded as revenue during the month of April?JustKitchens Inc. provides services to restaurants and hotels. The company supplies paper products, tableware, cookware, restaurant and kitchen equipment, and cleaning supplies. On January 2, 2019, Just-Kitchens enters into a contract with a local restaurant chain to provide its services for 3 years at a cost of 10,000 per year. The restaurant chain pays the total contract fee on January 2, 2019. JustKitchenss stand-alone selling price is also 10,000 per year. After 2 years, the restaurant asks to modify the contract. On January 2, 2021, the companies agree to reduce the fee for the third year to 9,000 in exchange for extending the contract for 2 additional years at a fee of 11,000 per year. This modification is agreed to by both parties, and on that date the restaurant chain pays for the additional 2 years of service. The 11,000 fee for the additional years is the same as JustKitchenss stand-alone price. Required: 1. How should JustKitchens account for the contract modification? 2. Prepare the journal entry that JustKitchens would make over the life of the contract.
- 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?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.Assume that in March a farmer and a baker enter into a forward contract on 100,000 bushels of wheat at a price of $5 per bushel for delivery in September. In September the spot price of wheat is $5.2 per bushel. Who has profited from entering into the forward contract, by how much?
- A large agribusiness firm has contracted to deliver 100,000 bushels of wheat for $8.50 a bushel at the end of October. On the delivery date, the spot price of wheat is $8.70 per bushel. Which of the following is true? a. the buyer of the contract has a 20,000 loss b. the buyer of the contract has a 20,000 profit c. the seller of the contract has 20,000 profitExplain who will be at profit and who will lost based on the situation belowand show the calculation. Given that in May a farmer and a baker enter into a forward contract on a thousand bushels of wheat at a price of $5.00 per bushel for delivery in December. In December the spot price of wheat is $4.00 per bushel.Sarjit Systems sold software to a customer for $80,000. As part of the contract, Sarjit promises to provide “free” technical support over the next six months. Sarjit sells the same software without technical support for $70,000 and a stand-alone six-month technical support contract for $30,000, so these products would sell for $100,000 if sold separately. Prepare Sarjit’s journal entry to record the sale of the software.
- Velocity, a consulting firm, enters into a contract to help Burger Boy, a fast-food restaurant, design a marketingstrategy to compete with Burger King. The contract spans eight months. Burger Boy promises to pay $60,000at the beginning of each month. At the end of the contract, Velocity either will give Burger Boy a refund of$20,000 or will be entitled to an additional $20,000 bonus, depending on whether sales at Burger Boy at yearend have increased to a target level. At the inception of the contract, Velocity estimates an 80% chance that itwill earn the $20,000 bonus and calculates the contract price based on the expected value of future paymentsto be received. After four months, circumstances change, and Velocity revises to 60% its estimate of the probability that it will earn the bonus. At the end of the contract, Velocity receives the additional consideration of$20,000.Required:1. Prepare the journal entry to record revenue each month for the first four months of the contract.2.…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. $61,500The Krispy Donuts franchise has agreements with 100 franchisees across the United States to operate bakeries. On January 1, 2020, Krispy Donuts grants a franchisee the right to operate a bakery in Minneapolis, Minnesota using the Krispy Donut’s brand name, recipe, and other business concepts for a price of $800,000. On January 1, 2020, the franchisee made a down payment to the franchisor of $80,000 and paid the remaining $720,000 upfront fee on March 31, 2020. In exchange for the $800,000 payment, the franchisee received franchise rights, which include benefits of a national advertising campaign over the ten-year period (starting on the contract date) to promote the brand name of Krispy Donuts. The payment also includes the purchase of kitchen equipment from the franchisor (fair value of $96,000), and upfront training and assistance in setting up the franchise (fair value of $32,000). The training and assistance will be performed before the opening of the bakery. Equipment was…
