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Write your response and explain your reasoning.
Fictional Summit Systems sells monitoring equipment and support in its ordinary activities. Northwind signs an equipment order on December 20 and a support side letter on December 21. The side letter gives Northwind a discount only if the equipment order proceeds. The documents identify the promised goods and services, each party's rights, and payment terms. The arrangement changes the risk, timing, and amount of Summit's future cash flows. Northwind has the ability and intent to pay substantially all consideration for the goods and services that will transfer.
Northwind pays a refundable $20,000 deposit on December 20. Until its procurement board approves the purchase, Northwind can cancel both documents without compensating Summit. Summit has not transferred any goods or services. The board approves both documents on January 8, and the cancellation right then expires. No other facts change.
Prepare a dated contract-boundary memo for December 20 and January 8. Address customer scope, all five contract criteria, the deposit, continued assessment, and whether to combine the documents. State one fact change that could alter each date's analysis. Do not identify performance obligations or recognize revenue merely because a Topic 606 contract exists.
Use ASC 606-10-25-1 through 25-2 for the entry criteria and enforceability. Use 25-5 through 25-8 for reassessment and consideration received before the criteria are met. Apply 25-9 before mapping the promises.
Compare your reasoning with the worked answer
On December 20, Summit does not have a Topic 606 contract. The customer's board has not approved the arrangement, and the customer can cancel without compensation. The parties therefore are not yet committed to perform. Summit records the refundable $20,000 deposit as a liability, not revenue, and continues to assess the criteria.
The January 8 board approval removes the cancellation right. The supplied facts then establish approval and commitment, identifiable rights and payment terms, commercial substance, and probable collection. Northwind buys an output of Summit's ordinary activities and is a customer. The two documents were signed at or near the same time with the same customer. Their prices are interdependent because the support discount applies only if the equipment order proceeds. That one criterion requires Summit to combine them as one accounting contract before identifying performance obligations.
Evidence that the board approved earlier would move the entry date earlier if every other criterion was met then. A significant later change in facts, such as a severe decline in Northwind's ability to pay for the remaining goods or services, would require reassessment. The deposit and signatures alone do not establish revenue, and contract combination does not decide when revenue is recognized.