Enterprise Solutions Inc. licenses its productivity software to Blackmon Company for $100,000, payable at contract inception. Enterprise agrees to provide semiannual software upgrades over the 5-year length of the contract to enable Blackmon to benefit from any technological advancement. Enterprise concludes that the software license is not distinct from the promised upgrades. What
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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.arrow_forwardOn March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?arrow_forwardYankee 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?arrow_forward
- In July 2020, Sykick Software Company licenses its accounting software to RayHawk Corporation at a cost of $30,000 for two years and also enters into a contract to install the software for an additional $3,000. Trident sells the software license with or without installation. The accounting software is not modified or customized by the customer. Required: Prepare journal entry for Sykick to record this transaction assuming that installation will occur in July 2020 when RayHawk pays Sykick $33,000 per their agreement.arrow_forwardGenius Ltd is a computers and software developer that enters into a contract with a customer to sell 12 computers for £600 each. In the contract the customer has required Genius Ltd to transfer the specific software license, perform the installation, and provide a software update and technical support for a two-year period for a price of £20,000. The company usually sells the software license, the installation service, the software update and the technical support separately to customers at the respective prices of £8,000, £4,000, £4,000 and £4,000. The customer requires a specific installation service that includes some specific functions to enable the software to interface with other customized software application. After the delivery of the first 6 computers, the contract is modified and the customer required the delivery of an additional 8 computers (for a total of 20 computers). The price of the additional computer is £490 which is the stand alone price of the additional products.…arrow_forwardOn July 1, 2020, Wash Co. grants a franchisee the right to sell Wash Co.'s products in a specific market over a period of 10 years. The franchise contract required an upfront fee of P800,000, which includes P100,000 for equipment. The amount reflects the stand-alone selling price of the equipment. in addition, the franchisee will pay 10% sale-based royalty. Wash Co. has granted similar rights to other franchisees in other locations. Wash Co. regularly undertakes activities that promote the brand name nationally. Wash delivers the equipment to the franchisee on July 15, 2020. The franchisee starts selling the products on August 1, 2020 and reports total sales of P600,000 for the year. How much total revenue is recognized from the contract in 2020?arrow_forward
- MarcTech Engineering licensed software to oil-drilling firms for 5 years. In addition to providing the software, the company also provides consulting services and support to ensure the smooth operation of the software. The total transaction price is $420,000. Based on standalone values, the company estimates the consulting services and support have a value of $120,000 and the software license has a value of $300,000. Assuming the performance obligations are not interdendent. Required: List out how many performance obligations would be included in this transaction.arrow_forwardOn December 31, 2018, SG signed an agreement authorizing Asher Company to operate as a franchisee for an initial franchise fee of P750,000. Of this amount, P250,000 nonrefundable down payment was paid upon signing of the agreement and the balance is payable in four equal annual payment beginning December 31, 2018. The nonrefundable down payment represents a fair measure of the services already performed by SG however, substantial future services are required of SG. Asher’s credit rating is such that collection of the note is reasonably certain and that the money can be borrowed at 12%. On December 31, 2018, earned franchise fees should be reported as: (Round off present value factor to 2 decimal places.)arrow_forwardBrilliant Company sold a franchise to sell its products for P5,000,000 on January 1, 2021. The initial fee is payable P500,000 upon signing of the contract and the balance in 5 equal installments every December 31, evidenced by a 12% promissory note. The agreement provides that the franchisor will assist in the location of site, supervision of the building construction, project study or market survey, assistance in the acquisition of facilities, training and management of personnel, quality control, advertising and promotion. It was also agreed that the franchisee will pay a royalty fee equal to 5% of its average sales every calendar year. The franchise outlet was opened on May 1, 2021 and the average monthly sales of the franchisee is P100,000. The franchisor has incurred P1,500,000 related to the services required by the contract. 1. How much is the Initial Franchise Fee Revenue to be recognized in 2021? 2. How much is the Continuing Franchise Fee Revenue to be recognized in 2021? 3.…arrow_forward
- On Nov. 1, 20x1, DRINK Co. entered into a franchise contract with TIPPLE Co. The franchise agreement requires an initial franchise fee that is payable as follows: 20% down payment at the signing of the contract, and the balance due in four equal annual payments starting November 1, 20x2. The license period is 4 years. The franchise contract requires DRINK Co. to undertake pre-opening activities necessary to setup the contract and post-opening activities that would further improve the intellectual property to which the franchisee has rights. All the preopening activities are completed, and TIPPLE Co. started operations, on January 31, 20x2. How should DRINK Co. recognize revenue from the initial franchise fee?arrow_forwardSaar Associates sells two licenses to Kim & Company on September 1, 2021. First, in exchange for $100,000, Saar provides Kim with a copy of its proprietary investment management software, which Saar does not anticipate updating and which Kim can use permanently. Second, in exchange for $90,000, Saar provides Kim with a three-year right to market Kim’s financial advisory services under the name of Saar Associates, which Saar advertises on an ongoing basis. How much revenue will Saar recognize in 2021 under this arrangement?arrow_forwardOn January 1, 2030, ABC granted a 3 year franchise contract with XYZ. The terms of the contract are that ABC is required to pay a non-refundable initiation gee of P7,200 and a membership fee of P1,800 per month. XYZ determine that its customers on average, renew their annual membership two times before terminating their membership. How many performance obligations exists in the contract for membership fee agreement?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT