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Write your response and explain your reasoning.
Use the Year 1 facts from the Linden Peak worked example. Opening receivable and contract balances are zero. Revenue is $109,200, billings are $100,000, and collections are $90,000. Performance occurs first, followed by billing and collection. The billed amount becomes an unconditional right to payment before it is collected. The remaining right for goods and services already transferred depends on completing the next support milestone.
Assume the contract and revenue recognition conclusions are established. There are no refunds, credit losses, modifications, taxes, or foreign-currency effects. Explain how removing the milestone condition would change the classification.
A commission is payable only if Linden Peak obtains the contract and is expected to be recovered. Salaried proposal effort occurs regardless of outcome and is not chargeable to the customer. No cost amounts are supplied; explain the accounting and the additional facts needed for amortization and impairment.
Prepare the receivable and contract-position reconciliations and the recognition, billing, and collection entries. Explain which contract and measurement judgments the arithmetic cannot establish. Explain why these facts create no contract liability. Identify the additional facts needed for a cost schedule before opening the worked answer.
For the cost classification, read ASC 340-40-25-1 through 25-4. The related transfer pattern and impairment test are addressed in 35-1 and 35-3.
Compare your reasoning with the worked answer
Receivables end at $10,000: $100,000 of unconditional rights less $90,000 collected. The contract asset ends at $9,200: $109,200 of recognized performance less $100,000 reclassified to receivables.
Initially debit Contract Asset and credit Revenue for $109,200. When the $100,000 right becomes unconditional, debit Accounts Receivable and credit Contract Asset. On collection, debit Cash and credit Accounts Receivable for $90,000. These later entries create no new revenue.
There is no contract liability: the stated performance precedes both the unconditional payment right and collection. If the remaining milestone condition disappears, reclassify $9,200 from Contract Asset to Accounts Receivable without changing revenue; the combined amount of those rights is unchanged.
The recoverable success-based commission meets the incremental acquisition-cost test. Expense the salaried proposal effort because it occurs regardless of success and is not chargeable to the customer. Before measuring the commission asset, obtain its amount, the related goods or services and transfer pattern, supported renewal expectations, and recovery evidence. The one-year-or-less amortization-period expedient permits expensing if elected; it is not automatic. Amortization follows the related transfer pattern. An impairment assessment needs the carrying amount, relevant remaining consideration, related costs not yet expensed, and the applicable testing sequence. The supplied facts do not support numerical cost schedules. Credit-loss allowances require their own evidence; the zero-loss assumption here does not establish collectibility for another contract.