Al Jabel Corporation sells WIFI speakers and offers 2- year warranty contract to customers. During 2020 AI Jabel sold 15,000 warranty contract at $99 each. Al Jabel spent $ 135,000 serving warranties during 2020, and it estimates that an additional $675,000 will be spent in the future to service the warranties. Prepare journal entries for: (a) The sale of contract (b) The cost of servicing warranties (c) The recognition of warranties revenue

Al Jabel Corporation sells WIFI speakers and offers 2- year warranty contract to customers. During 2020 AI Jabel sold 15,000 warranty contract at $99 each. Al Jabel spent $ 135,000 serving warranties during 2020, and it estimates that an additional $675,000 will be spent in the future to service the warranties. Prepare journal entries for: (a) The sale of contract (b) The cost of servicing warranties (c) The recognition of warranties revenue

Financial Accounting: The Impact on Decision Makers

10th Edition

ISBN:9781305654174

Author:Gary A. Porter, Curtis L. Norton

Publisher:Gary A. Porter, Curtis L. Norton

Chapter9: Current Liabilities, Contingencies, And The Time Value Of Money

Section: Chapter Questions

Problem 9.11E

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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.
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