Worked-example setupScope and assumptions
- Cedar and Valley Retail are fictional, and the equipment and support are outputs of Cedar's ordinary activities.
- The stated rights, payment terms, commercial substance, collectibility, approval, and termination facts are supplied conclusions for this exercise.
- No goods or services transfer before approval, and the deposit remains refundable until that date.
- Period
- December 18 through January 5
- Units
- US dollars
- Rounding
- Whole US dollars; no rounding required
Cedar signs an equipment order with Valley Retail on December 18. It receives a refundable $12,000 deposit that day. Valley can cancel without compensation until its procurement board approves the purchase. Cedar has transferred no goods or services. The board approves the purchase on January 5, and the cancellation right then expires.
The arrangement identifies each party's rights and payment terms and has commercial substance. Valley has the ability and intent to pay substantially all consideration for the goods and services that will transfer. Valley buys equipment and support that are outputs of Cedar's ordinary activities.
On December 18, approval and commitment are not established. Cedar therefore does not yet account for the arrangement as a Topic 606 contract under ASC 606-10-25-1. The cash receipt does not fix the missing criterion. Cedar records a $12,000 liability under 25-8 and continues to assess the arrangement under 25-6. The checked sum confirms the liability equals the deposit received. It does not establish approval, enforceability, or any other contract criterion.
On January 5, board approval removes the cancellation right. All five entry criteria are now supported by the supplied facts. Cedar enters the Topic 606 model on that date. This conclusion does not recognize revenue; Cedar must still identify its performance obligations and apply the remaining steps.
Cedar and Valley also sign a support side letter on January 5. Its discount applies only if the equipment order proceeds. The documents were entered into at the same time with the same customer, and one document's price depends on the other. Cedar combines them under ASC 606-10-25-9. That price link is enough; Cedar does not need all three combination criteria.
Now prepare the independent Summit memo.
Verified calculation · scoped sums
The curriculum loader recomputed this example before it entered the site build. Expand any structured input to inspect the stated facts.
- amounts
- 1 field
Inspect data
{
"refundable_deposit_received": 12000
}- totals
- 1 field
Inspect data
{
"deposit_liability": [
"refundable_deposit_received"
]
}Recomputed result
| Measure | Value |
|---|---|
| deposit liability | 12,000 |