On January 1, 2017, Loud Company enters into a 2 year contract with a customer for an unlimited talk and 5 GB data wireless plan for $65 per month. The contract includes a smartphone for which the customer pays $299. Loud also sells the smartphone and monthly service plan separately, charging $649 for the smartphone and $65 for the mointhly service for unlimited talk and 5 GB data wireless plan. Contract Modification- Assume the same facts above. On July 1, 2017, the customer realizes that she needs less data in her wireless plan and downgrade to the unlimited talk and 2 GB data plan for the remaining term of the contract (18 months). The unlimited talk and 2 GB data plan is priced at $55 per month. The $55 per month is Loud's current stand- alone price for this plan that is available to all customers. Required 1. How should Loud account for this contract modification? 2. Provide Loud's new monthly revenue recognition journal entry.

Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter17: Advanced Issues In Revenue Recognition
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On January 1, 2017, Loud Company enters into a 2 year contract with a customer for an unlimited talk and 5 GB data wireless plan for $65 per month. The contract includes a smartphone for which the customer pays $299. Loud also sells the smartphone and monthly service plan separately, charging $649 for the smartphone and $65 for the mointhly service for unlimited talk and 5 GB data wireless plan.

Contract Modification- Assume the same facts above. On July 1, 2017, the customer realizes that she needs less data in her wireless plan and downgrade to the unlimited talk and 2 GB data plan for the remaining term of the contract (18 months). The unlimited talk and 2 GB data plan is priced at $55 per month. The $55 per month is Loud's current stand- alone price for this plan that is available to all customers.

Required

1. How should Loud account for this contract modification?

2. Provide Loud's new monthly revenue recognition journal entry.

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