 and welcome to the session in which we would look at an exercise or a CPA exam simulation that deals with contract modification. As of September 20 X2, Roger Distributors Inc. made the commitment to Staples to sell 150 iPhone-comparable covers for a total of 1500 at a rate of $10 per unit. The covers were to be delivered to Staples over a six-month period, however, after delivering 90 covers, the contract between the two companies was modified and Roger agreed to deliver an additional 45 for $427.50, which will give you a selling price of $9.50. Simply put, what they did is now they decided to sell those additional ones for $9.50, additional 45. It's important to note that all sales between the two companies were conducted on a cash-on-delivery basis and the cost for each cover for Roger is $4 because we're going to be preparing journal entries using the Perpetual Inventory System. Record the journal entry for the sale for the first 90 covers. Well, we sold 90 covers. It was $10. That's the price per unit, so we are going to receive $900, so we debit cash 900, credit sales 900. We said the cost for each unit is $4, $4 times 90 unit is 360. Pretty straightforward, nothing unusual about it. Before we proceed any further, I have a public announcement about my company, farhatlectures.com. Farhat Accounting Lectures is a supplemental educational tool that's going to help you with your CPA exam preparation as well as your accounting courses. My CPA material is aligned with your CPA review course such as Becker, Roger, Wiley, Gleam, Miles. My accounting courses are aligned with your accounting courses, broken down by chapter and topics. My resources consist of lectures, multiple choice questions, true-false questions, as well as exercises. Go ahead, start your free trial today. No obligation, no credit card required. Now, record the journal entry for the sale of 10 additional covers after the contract modification. Now, the contract was modified and we made an additional 10 sale of additional 10 unit. Now, here's what we're going to assume. Assume that the price for the additional covers reflect standalone selling price at the time of the contract modification. Well, what does that mean? It means the additional 10 unit are independent from the new contract. They represent a standalone selling price. Also, the additional covers are distinct from the original product as Roger regularly sell these products separately. They have a standalone price and they are totally distinct. Well, what does that mean? It means we have an independent sale of 10 units and those 10 units, 10 more covers are sold for $10. Well, 10 units times $10 will give us $100 in cash, credit sales $100. Now, cost of goods sold is $40, which is $10, 10 units times 4, which will give us debit cost of goods sold credit inventory. Now, we are going to change the scenario. How? Well, we're going to change the scenario assuming it's not a standalone price. Now, when does the $9.50 kick in? Just kind of if we're going with this scenario. Remember, we had 150 units originally. We sold 90. We are left with 60. So, as long as we're selling those 60, we're going to keep selling them at $10 assuming that the price for the additional cover reflect standalone prices. They have nothing to do with the old contract. They're independent from the old contract. So, when do we kick in that $9.50 when we sell that 151st unit? Then we have the new price. Let's change the scenario a bit. Let's record the journal entry for the 10 more covers assuming that the pricing for the additional product does not reflect the standalone selling price for the additional product and the prospective method is used. Once we say the prospective method is used, we have to go back and look at the previous contract blended with the new contract because those new contract, they don't have a standalone. They don't reflect standalone selling prices. What does that mean? It means they are part of the old deal. So, the reason now you're selling for $9.50 each unit is giving a discount for the customer. So, there's some sort of a discount. So, we have to compute a blended price. Remember, we started with $1.50. We sold 90 units. So, we still have 60 units. 60 units. Now, in addition to the 60 unit, we are delivering 45. So, for the 60 units, they have a $600 sales price over old. The 45 new units, they have $427.50. Together, total of $1,027.50 divided by 105 units, the blended price, the blended price or the blended sale price is $9.758. Before selling 10 units, we're going to debit cash for $97.85, credit sales for the same amount, debit cost of goods sold for $40 that does not change, credit inventory for $40 as well. Now, what should you do now as a CPA candidate or as an accounting student? Go to Farhad Lectures, look at additional resources that's going to help you with your courses, with your CPA, CMA, whatever review you are doing, whatever accounting certification you are studying for, invest in yourself, invest in your career. It will pay dividend down the road. Good luck, study hard and stay safe.