Ways of Dealing with Different Types of Contracts
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Ways of Dealing with Different Types of Contracts
1-A company enters into a contract to sell 70 products to a customer for $80 each. After the company transfers 30 of the 70 products, the customer orders an additional 25 products. The contract is modified, and the additional 25 products are priced at $40 each. What is the price per product for the remaining 65 products (40 products from the original contract and 25 products from the modification)?
2- On August 1, 20X2, a company incurs a cost to fulfill a contract. The company will benefit from the cost over the next 11 months. How should the company account for the cost?
3- What type(s) of revenue will a contract with a significant financing component generate?
4- A company enters into a contract in which variable consideration is offered. The company will either meet the deadline to receive the variable consideration or receive no variable consideration. Based on experience, the company expects that the most likely outcome is that it will meet the deadline to receive the variable consideration. How should the company determine the transaction price?
5- Quarry Company enters into a contract with Eclipse Manufacturing to purchase a large piece of machinery. The contract includes both the machine and installation for a single total contract sales price. Quarry does not have the specialized expertise to install the machine, and Eclipse commonly includes installation as part of the single contract price it quotes its customers. How should Eclipse allocate the contract price to the performance obligation(s)?
6- Rhonda Company enters into a contract with Petersburg, Inc. on March 5. According to the contract, Rhonda is scheduled to deliver 100 units of Product 1 at a sales price of $60 per unit and 150 units of Product 2 to Petersburg, Inc. by June 30 at a sales price of $75 per unit. Rhonda agrees to deliver both Products 1 and 2 before being entitled to any payments. The following deliveries are made by Rhonda to Petersburg: On March 25, Rhonda delivers 100 units of Product 1.On June 20, Rhonda delivers 150 units of Product 2. What amount(s) relating to this contract should Rhonda report on its June 30 balance sheet?
7- Fowler Inc. purchases new appliances for several new restaurants that are under construction. Godwin sells the appliances to Fowler and agrees to retain physical possession of the appliances until Fowler’s restaurants are ready to take delivery. The total contract price is $45,000. Godwin has separated the appliances from its other appliance inventory and clearly marked them as belonging to Fowler. Godwin has already prepped the appliances for immediate delivery, and the product will not be directed to another customer. How much revenue should Godwin recognize in the current period from this contract?
8- Claytor Company offers buyers a right of return on all sales of its devices. Claytor sells 200 devices to a buyer and expects that 15 of the devices will be returned. Each device is sold to the buyer for $40. If the buyer returns 8 devices before the end of the year, what amount should Claytor reflect in its Allowance for Sales Returns and Allowances account?
9- Charlie Company modified an existing contract with a buyer to add on additional goods. The original goods and the additional goods may be used independently and are considered distinct. Charlie intends to modify the existing contract in a manner that will result in a new separate contract. How should Charlie price the additional goods to ensure that a new separate contract is created?
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