Question

JustKitchens Inc. provides services to restaurants and hotels. The company supplies paper products, tableware, cookware, restaurant and kitchen equipment, and cleaning supplies. On January 2, 2017, Just- Kitchens enters into a contract with a local restaurant chain to provide its services for 3 years at a cost of $10,000 per year. The restaurant chain pays the total contract fee on January 2, 2017. JustKitchens’s stand-alone selling price is also $10,000 per year. After 2 years, the restaurant asks to modify the contract. On January 2, 2019, the companies agree to reduce the fee for the third year to $9,000 in exchange for extending the contract for 2 additional years at a fee of $11,000 per year. This modification is agreed to by both parties, and on that date the restaurant chain pays for the additional 2 years of service and deducts $1,000 for the adjustment to the original contract. The $11,000 fee for the additional years is the same as JustKitchens’s stand-alone price.

Required: Prepare the journal entries that JustKitchens would make over the life of the contract.

I am looking for the journal entries for year 2021.

Answer 1

Prepare the journal entries as follows:

Date	Account Title and Explanation	Debit	Credit
January 2	Cash ($10,000 × 3)	$30,000
2017	Unearned revenue		$30,000
	To record unearned revenue
December 31	Unearned revenue	$10,000
2017	Service revenue		$10,000
	To record service revenue earned
December 31	Unearned revenue	$10,000
2018	Service revenue		$10,000
	To record service revenue earned
January 2	Cash ($11,000 × 2) − $1,000	$21,000
2019	Unearned revenue		$21,000
	To record unearned revenue
December 31	Unearned revenue	$9,000
2019	Service revenue		$9,000
	To record service revenue earned
December 31	Unearned revenue	$11,000
2020	Service revenue		$11,000
	To record service revenue earned
December 31	Unearned revenue	$11,000
2021	Service revenue		$11,000
	To record service revenue earned