Separate Cedar Trail's financing and other consideration

Problem

Cedar Trail transfers a standard device today. Its cash selling price is $100,000. The customer will pay $121,000 in two years. Contract review supports a significant financing component. Credit and collateral evidence supports a 10 percent contract-inception rate.

The customer also transfers a fixed number of marketable shares. Their contract-inception fair value is $8,000. Cedar Trail pays the customer $5,000 for a trade-show booth. The booth is a distinct service with a supported fair value of $3,000. These conclusions are supplied for calculation.

Another customer retains part of its payment while Cedar Trail builds a custom system. The retained amount becomes due only after acceptance. It matches the protection needed if Cedar Trail does not complete the system. Compare this arrangement with the standard-device delay.

Diagnose the payment purpose

Because the standard device has already transferred, the later amount compensates Cedar Trail for waiting to collect. Those facts support the supplied financing conclusion. Revenue for that cash component is $100,000 at transfer. Interest is presented separately.

By contrast, the custom-system holdback protects the customer against incomplete performance. Its purpose supports a nonfinancing conclusion even though cash is delayed. The length of a payment gap does not decide the issue by itself.

Build the interest path

Ending balance equals the promised cash. The schedule separates $100,000 of revenue from $21,000 of financing income.

Add noncash value and split the customer payment

The fixed shares add their supplied $8,000 contract-inception fair value to transaction price. Later share-price changes caused only by the form of the consideration do not revise that amount under the supplied facts.

Of Cedar Trail's $5,000 payment, $3,000 buys the distinct booth service at its fair value. That amount follows the normal purchase accounting. The $2,000 excess reduces transaction price.

$100,000 transfer-date cash selling price
+  8,000 noncash consideration
-  2,000 customer-payment excess
= $106,000 transaction price

Verification boundary

The calculation checks the interest path, payment split, and transaction price. It does not decide economic purpose, significance, the discount rate, transfer, fair value, control of contributed items, distinctness, or recognition timing.

Read the financing guidance in ASC 606-10-32-15 through 32-20. The other-consideration guidance in 32-21 through 32-27 covers noncash value and customer payments. Then complete the independent Northstar practice.