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Tyler Financial Services performs bookkeeping and tax-reporting services to star

ID: 2467568 • Letter: T

Question

Tyler Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2014, Tyler entered into a 3-year service contract with Walleye Tech. Walleye promises to pay $12,400 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $8,300. In addition, Walleye agrees to pay an additional $22,700 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract.

(a) Prepare the journal entries for Tyler in 2014 and 2015 related to this service contract. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date

Account Titles and Explanation

Debit

Credit

January 1, 2014

December 31, 2014

January 1, 2015

December 31, 2015

Tyler Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2014, Tyler entered into a 3-year service contract with Walleye Tech. Walleye promises to pay $12,400 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $8,300. In addition, Walleye agrees to pay an additional $22,700 at the beginning of the third year to cover the contract for 3 additional years (i.e., 4 years remain after the modification). The extended contract services are similar to those provided in the first 2 years of the contract.

Explanation / Answer

01-Jan-14 Cash A/c dr.    12,400 To service income       12,400 31-12-2014 No Entry 01-Jan-15 Cash A/c dr.    12,400 To service income       12,400 31-12-2015 No Entry