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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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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?

To determine

State whether the Corporation Y and Company A must treat the modification as a separate contract.

Explanation

Contract modification: In a contract, Companies generally modify the respective rights and performance obligations. An agreed-upon change in the goods or services that must be delivered or the contract’s price is known as a contract modification and it is also referred as contract amendment or change order...

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