BE18-3 (LO2) Hillside Company enters into a contract with Sanchez Inc. to provide a software license and 3 years of customer support. The customer-support services require specialized knowledge that only Hillside Company’s employees can perform. How many performance obligations are in the contract?Here’s part one
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BE18-2 (LO1): On May 10, 2017, Cosmo Co. enters into a contract to deliver a product to Greig Inc. on
June 15, 2017. Greig agrees to pay the full contract price of $2,000 on July 15, 2017. The cost of the
goods is $1,300. Cosmo delivers the product to Greig on June 15, 2017 and receives payment on July 15,
2017. Prepare the journal entries for Cosmo related to this contract. Either party may terminate the
contract without compensation until one of the parties performs.
The journal entries for this contract center on when the entities have the unconditional
right to receive consideration. Since neither Greig or Cosmo Co. has performed on the
contract, no entry will be recorded on May 10, 2017, because neither party has an
Cosmo Co. delivered the product that Greig Inc. ordered on June 15, 2017, so Cosmo Co.
will record the revenue. Cosmo can record a journal entry because they have fulfilled
their obligation, by delivering to Greig Inc. and have the unconditional right to recognize
The final journal entry for Cosmo Co. will be when cash is received from Greig Inc on July
15, 2017. Only when either party requires no further action should Accounts Receivable
The journal entries will look like this:
JOURNAL ENTRIES FOR CONTRACT BETWEEN COSMO CO. AND GREIG INC.
10-May-17 No entry.
15-May-17 Accounts Receivable
15-May-17 Cost of Goods Sold
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