Route Cedar Trail's contract change and inspection service

Problem

Cedar Trail Systems has six months left in an approved support contract. The unrecognized consideration allocated to those months is $48,000. The parties approve six added monthly support services for $30,000. Every monthly service can benefit the customer on its own and is separate from prior service. Current evidence shows a standalone selling price of $6,000 for each added month. Cedar Trail gives no supported adjustment for avoided selling costs or other contract circumstances.

In a separate promise, Cedar Trail offers a $15,000 site inspection performed by FieldMark. The customer contracts with Cedar Trail but directs FieldMark's work and accepts its report. FieldMark is responsible for meeting the inspection specifications. Cedar Trail does not use the inspection service as an input to another promised output. It has no inventory or fulfillment risk and pays FieldMark $11,500 only after customer acceptance. A contract range limits Cedar Trail's price choice.

Route the modification

Approval creates enforceable rights and obligations. The added months are distinct, but their $5,000 price per month does not reflect the $6,000 standalone selling price under the supplied evidence. The change fails the separate-contract price test.

Because the remaining months are distinct from prior service, so the change uses prospective accounting. Combine $48,000 of unrecognized original consideration with $30,000 of modification consideration. Allocate the $78,000 total to 12 remaining months. Revenue is $6,500 for each remaining month. Revenue recognized before the modification stays unchanged.

Present the inspection service

Here, the specified service is FieldMark's inspection and report. Cedar Trail does not control that service before transfer under the supplied facts. FieldMark has primary fulfillment responsibility, while Cedar Trail lacks inventory and fulfillment risk. Limited price discretion does not override the control evidence. Cedar Trail is an agent for this item.

Cedar Trail recognizes its $3,500 fee: $15,000 from the customer less $11,500 paid to FieldMark. It reports $3,500 of revenue and no separate $11,500 cost for the arranged service. If Cedar Trail instead controlled an integrated service before transfer, principal accounting would report $15,000 of revenue and $11,500 of cost.

Verification boundary

The calculation verifies the supplied prospective allocation and presentation amounts after both classifications are supplied. It cannot establish approval, enforceability, price evidence, distinctness, or control.

Read the modification guidance and the principal-agent guidance. Then complete the independent Northstar practice.