Allocate and reconcile Linden Peak's device-and-support contract

Linden Peak has already established the contract, the three performance obligations, and the amount it expects to receive. Your task is to carry those conclusions into allocation, revenue, entries, year-end balances, and the remaining performance obligation disclosure.

Start with the supplied contract conclusions

The calculations below test the effects of those supplied conclusions. They do not prove the contract facts or the judgments behind them.

Allocate the price before recording revenue

$120,000 fixed consideration
+  6,000 constrained bonus included
= $126,000 transaction price

Every obligation's scheduled revenue equals its allocation, and period revenue sums to transaction price.

Reconcile billings, cash, and rights

The contract makes each billed amount unconditional. The remaining right for transferred goods and services depends on the next support milestone. That condition, rather than the absence of an invoice alone, supports the contract asset classification. Later billings mark the supplied milestone completions.

Accounts Receivable follows billings less collection. The net contract position follows revenue less billings. Year 1 therefore holds both a $10,000 unconditional receivable and a $9,200 conditional contract asset; calling the sum “receivable” loses the remaining-condition distinction. By Year 3, revenue, billings, and collections each total $126,000 and both positions close.

Record performance, billing, and collection separately

Linden Peak records Year 1 performance before its full right to payment becomes unconditional:

Dr Contract Asset             $109,200
    Cr Revenue                           $109,200

Dr Accounts Receivable        $100,000
    Cr Contract Asset                    $100,000

Dr Cash                        $90,000
    Cr Accounts Receivable                $90,000

The entries leave a $10,000 receivable and a $9,200 contract asset. In Year 2, Linden Peak records $8,400 of revenue, bills $13,000, and collects $20,000. The company ends Year 2 with a $3,000 receivable and a $4,600 contract asset. The same sequence closes both balances in Year 3. ASC 606-10-45-1 through 45-4 governs the distinction among a contract asset, contract liability, and unconditional receivable.

Carry the same amounts into the revenue note

For Year 1, Linden Peak can support these contract-specific inputs to its wider revenue disclosure process:

ASC 606-10-50-8 addresses contract-balance information. ASC 606-10-50-13 addresses the amount allocated to unsatisfied performance obligations and the expected timing of recognition. Linden Peak must check the effective guidance for its reporting date because the local source also contains pending text. These contract-specific amounts do not complete the company's full revenue note or decide whether a disclosure exemption applies.

Know what this calculation does not prove

The calculation proves the supplied amounts allocate, recognize, and roll forward without residual. It does not prove enforceability, customer status, collectibility, distinctness, bonus constraint, SSP evidence, control transfer, credit-loss allowance, or disclosure sufficiency. Those are reviewed in the contract file and the connected receivables module.

Keep five amounts separate when you transfer this method: transaction price, allocated price, revenue, billings, and cash. Their differences create the receivable and contract balances; they do not create extra revenue. Next, apply the method to a contract in which the customer pays before either performance obligation is complete.

{
  "year_1": 100000,
  "year_2": 13000,
  "year_3": 13000
}

{
  "year_1": 90000,
  "year_2": 20000,
  "year_3": 16000
}

{
  "installation": {
    "recognition_by_period": {
      "year_1": 16800,
      "year_2": 0,
      "year_3": 0
    },
    "reported_allocation": 16800,
    "standalone_selling_price": 20000
  },
  "monitoring_device": {
    "recognition_by_period": {
      "year_1": 84000,
      "year_2": 0,
      "year_3": 0
    },
    "reported_allocation": 84000,
    "standalone_selling_price": 100000
  },
  "support_service": {
    "recognition_by_period": {
      "year_1": 8400,
      "year_2": 8400,
      "year_3": 8400
    },
    "reported_allocation": 25200,
    "standalone_selling_price": 30000
  }
}

[
  "year_1",
  "year_2",
  "year_3"
]