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Write your response and explain your reasoning.
Fictional Northstar Analytics has two contracts. In Contract A, standard equipment transfers today. Its cash selling price is $80,000, and the customer will pay $96,800 in two years. Credit and collateral facts support a supplied 10 percent contract-inception rate. In Contract B, payment follows acceptance of a custom system. The retained amount matches the protection needed if Northstar does not finish the work.
The Contract A customer also gives Northstar equipment that Northstar controls. Its contract-inception fair value is supplied as $6,000. Northstar pays the customer $7,000 for a marketing service. The service is supplied as distinct, and its fair value is $4,000.
Build one timeline and one classification table. Compute Contract A's revenue and two-year interest path, split the customer payment, and compute transaction price. Explain why Contract B follows a different path. State one fact that would reverse each classification and what the calculation cannot establish.
Use ASC 606-10-32-15 through 32-20 for the financing objective and measurement guidance. Use ASC 606-10-32-21 through 32-27 for noncash consideration and amounts payable to a customer.
Compare your reasoning with the worked answer
Contract A provides financing because the equipment transfers immediately and the later amount compensates Northstar for waiting. The transfer-date cash selling price is $80,000. Interest income is $8,000 in Year 1 and $8,800 in Year 2, which accretes the receivable to $96,800. Contract B's payment gap protects the customer from incomplete performance and is proportional to that purpose, so the supplied facts support no significant financing component.
The customer equipment adds its supplied $6,000 contract-inception fair value to transaction price because Northstar obtains control. Later value changes caused only by the equipment's form do not change transaction price. Of the $7,000 customer payment, $4,000 buys the supplied distinct service at fair value. The remaining $3,000 reduces transaction price. Transaction price is therefore $83,000: $80,000 plus $6,000 less $3,000.
A failed transfer conclusion would reverse Contract A's timing analysis. A payment amount unrelated or disproportionate to protection would reopen Contract B's financing analysis. Different contract-inception fair value or failure to obtain control would change the noncash amount. Failure of distinctness or reliable fair-value support would cause more or all of the customer payment to reduce transaction price.
The calculation accepts the financing, rate, fair value, control, and distinct-service conclusions as inputs. It cannot establish any of them or decide revenue-reduction timing.