Contract Modifications and other considerations

Question 1

What must happen before a franchisor can recognize revenue?

Answer 1

the activities pertaining to the franchise must be substantially complete.

Question 2

What is the earliest point of substantial completion?

Answer 2

commencement of operations by the franshisee.

Question 3

IF a company enters into a contract to sell 50 products to the customer at $30 each and the company transfers 30 of the 50 but then modifies the contract to add 25 products at $15 what would be the price of the product for the remaining 45?

Answer 3

$21.67 because it would be a blended price of 20 remaining products at $30 each and 25 additional at $15 each. 25 x $15= 375 + $30X20= $600 $375 + $600= $975 divided by 45 products.

Question 4

A company incurred costs to fulfill a contract that has a four-year life. The costs are a direct result of the contract and would not have been incurred had the contract not existed. How should the costs to fulfill the contract be accounted for?

Answer 4

REcorded as an asset and amortized over four years