Answer to Question #311105 in Accounting for john

Question

Scenario #1: Stewart Company signed one of its biggest clients in history, the company was able to tie the client to a two year contract, at $2,000,000 for year 1, with a 50% increase in year 2. The terms of payment is quarterly with first payment due upon completion of implementation. Additionally $200,000 implementation fee that is set to be completed on Jan 31, 2022. Please provide journal entries to be booked as it relates to the terms of this contract for ME (month-end) close for the periods of Jan 2022, Feb 2022 , May 2022, Aug 2022, Dec, 2022, and Feb 2023. 

Answer 1

Year 1 amount=$2,000,000

Year 2 amount=1.5 of $2,000,000=$3,000,000

Journal entries

January 2022.

Debit Cash/Bank $200,000

Credit Contract fee $200,000

Being cash received to cater for implementation.

February 2022.

Debit Cash/Bank $500,000

Credit Contract fee $500,000

Being first installment payment fees.

May 2022.

Debit Cash/Bank $500,000

Credit Contract fee $500,000

Being second instalment fees paid.

August 2022.

Debit Cash/Bank $500,000

Credit Contract fee $500,000

Being third instalment fees paid.

December 2022.

Debit Cash/Bank $500,000

Credit Contract fee $500,000

Being last instalment fees paid.

February 2023.

Debit Cash/Bank $250,000

Credit Contract fee $250,000

Being first instalment fees paid on second year.