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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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On January 1, 2019, Spring Fashions Inc. enters into a contract with a southeast retail company to provide 500 dresses for $62,500 ($125 per dress) over the next 10 months. On October 1, 2019, after 450 of the dresses had been delivered (50 dresses per month), the contract is modified.

Required:

  1. 1. Fifty dresses were delivered each month for the first 9 months of 2019. Prepare Spring Fashions’s monthly journal entry to record revenue.
  2. 2. Assume that the contract is modified to sell, once the original 500 dresses are delivered, an additional 100 dresses at $110 per dress, which is the stand-alone selling price on October 1, 2019. Assume the dresses are delivered evenly in November and December 2019. Prepare the journal entries to record the contract modification.

1.

To determine

Journalize entries to record revenue for Company S.

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.

Journal entry: Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

  • To record increase balance of account: Debit assets, expenses, losses and credit liabilities, capital, revenue and gains.
  • To record decrease balance of account: Credit assets, expenses, losses and debit liabilities, capital, revenue and gains

Prepare monthly journal entry from January to September:

DateAccount titles and explanationDebit ($)Credit ($)
 Cash (1) 6,250 
    sales revenue 6,250
 ( To record the amount of sales revenue )  

Table (1)

  • Cash is an asset and it is increased...

2.

To determine

Journalize entries to record contract modification.

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