Saler Company Entered into Two Contractual Agreements with Two Customers

question 96

Multiple Choice

Saler Company entered into two contractual agreements with two customers. Customer 1 agreed to buy 5,000 units of Product X11 per month for 24 months at $25 per unit. Customer 2 agreed to purchase advisory services for 12 months at $16,000 per month. Both customers agreed to modify their contracts after 6 months had passed. I. If Customer 1 decides to buy more than 5,000 units in any given month, the price will be $21 for the additional units, which is representative of the stand-alone price for this product in similar situations.
II) Customer 2 agrees to extend the period of time for advisory services to 15 months at the same price and to purchase 2,000 units of Product X11 per month for the next nine months at $15 per unit.
Which of these contract modifications creates a separate contract?

• A) I only
• B) II only
• C) Both I and II
• D) Neither I nor II

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Definitions:

Internal Control

Procedures and processes implemented by a business to safeguard assets, ensure accurate and reliable financial reporting, and promote compliance with laws and regulations.

Sarbanes-Oxley

A U.S. law enacted to protect investors by improving the accuracy and reliability of corporate disclosures.

Public Confidence

is the trust and belief the general public holds in the stability and integrity of institutions, markets, and systems.

Petty Cash Fund

A small amount of cash kept on hand to pay for minor, incidental expenses.