Check your answer
Write your response and explain your reasoning.
Harbor Services pays a $3,600 commission only when it obtains a customer contract, and recovery is expected. A $2,000 proposal-team salary is incurred regardless of whether Harbor obtains the contract and cannot be charged to the customer. No other Topic applies to either cost.
The commission relates to services transferred evenly over three annual periods, with no renewal period. Harbor has completed one period. The supported amortization period exceeds the practical expedient's one-year-or-less limit.
Assume assets tested under other Topics have already been tested. At the test date, remaining consideration related to the services is $18,000. Related remaining costs not yet recognized as expenses are $14,000.
Classify both costs. Compute annual and cumulative amortization, the carrying amount before impairment, the impairment comparison amount, any impairment loss, and the ending carrying amount. State which supplied judgments and inputs the schedule cannot establish. Compare your result with the worked answer only after completing the schedule.
Use ASC 340-40-25-1 through 25-4 for acquisition costs and the practical expedient. Use ASC 340-40-35-1 for the amortization pattern and ASC 340-40-35-3 for the impairment comparison.
Compare your reasoning with the worked answer
Capitalize the $3,600 commission because it is incurred only if the contract is obtained and is expected to be recovered. Expense the $2,000 proposal salary because Harbor incurs it regardless of contract success and cannot charge it to the customer. The three-year amortization period means the one-year-or-less practical expedient is unavailable.
Annual amortization is $1,200: $3,600 divided by three years. After one year, the carrying amount before impairment is $2,400. The supplied impairment comparison amount is $4,000: $18,000 of remaining consideration less $14,000 of remaining costs. Because $2,400 does not exceed $4,000, the impairment loss is zero. The ending carrying amount is $2,400.
The schedule depends on the supplied eligibility, recovery, transfer-pattern, remaining-consideration, remaining-cost, and impairment-sequence facts. A different benefit period changes amortization. A lower comparison amount can create an impairment loss. The calculation does not establish those inputs.