Assignment
Below is the accounting question scenario. It is due on the 24th. Even if I do not get the full answer, I will be extremely happy with just guidance in the right direction on how to tackle this question.
Scenario I
In January 2015, contractor Tom Tucker entered into a 2-year construction contract with New Era Developers to build forty 1-bedroom low cost housing units in the Bel Air District for $2.7m. The contract has a single performance obligation. In March 2016, when some twenty-five units were completed, New Era and Tucker agreed to make some modifications to the contract completing the remaining housing units as 2-bedroom dwellings. It was anticipated that transaction price and expected cost would increase by some $1.5m and $0.5m respectively as a result of the modification.
Scenario II
Acu-Rate Inc. manufacturer of medical equipment entered into a contract with City Diagnostic Laboratories in April 2016 to sell 10 pieces of equipment for $150,000. The equipment transfers after a 4-month period of testing and installation. In June 2016, the contract was modified when Acu-Rate sold 4 additional pieces of equipment for $10,000 each. This represented their standalone selling price at the modification date.
Questions
Advise Tom Tucker how to account for his contract modification, including the rationale for your position.
Advise Acu-Rate how to account for its contract modification including the rationale for your position.