In February, Huron Ltd. incurred costs to obtain a contract with a customer. The contract is for two years.

In February, Huron Ltd. incurred costs to obtain a contract with a customer. The contract is for two years.
The following costs were incurred:
Travel costs to meet with the customer ...................................... $10,000
Legal costs to write up the agreement ....................................... $ 5,000
Cost of meals ................................................................................. $ 7,000
Marketing materials used to promote the product ................... $ 2,500

Required:

Prepare the journal entry for these costs.

Solutions

Expert Solution

Only directly related costs are capitalized and amortized over the term of the contract. Travel costs and the legal costs are specific to the contract; whereas marketing and meals are costs that would have been incurred regardless.

The entry is as follows:

Dr. Marketing expenses 2,500

Dr. Meals expenses 7,000

Dr. Contract costs 15,000

Cr. Cash /Accounts payable 24,500

Dr. Contract costs 15,000

Cr. Cash /Accounts payable 24,500

Junaid answered 8 months ago

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