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Bandera Marketers (Bandera) is a company that offers a variety of marketing services to its customers. Specifically:

Bandera will create a TV commercial for $1,200,000, build an app for $550,000, and build a Facebook page for $250,000. These amounts represent Banderas charges for these items when Bandera sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings.

If a customer purchases all aforementioned items together, the total cost is $1,750,000. Payment terms are 50% consideration due at contract signing, with the remaining 50% due over the rest of the development period (25% at mid-point, 25% at completion).

If the app is downloaded 500,000 times or more in the first month, the customer owes Bandera a one-time bonus of $300,000.

Rocky, a customer, has approached Bandera with the hopes of reinventing its image to a younger customer base. Rocky has a verbal agreement with Bandera that is based on Banderas unsigned quote to Rocky on November 30, 20X8, for one TV commercial, one app, and a Facebook page. The agreement creates enforceable rights and obligations pursuant to Banderas customary business practices. None of these items can be redirected by Bandera to another customer. Bandera performed a credit check on Rocky and has determined Rocky has the intention and ability to pay Bandera for fulfilling its portion of the contract. Rocky is required to pay Bandera for performance completed to date if Rocky cancels the contract with Bandera for reasons other than Banderas failure to perform under the contract as promised.

Rocky makes a payment on November 30, 20X8, in the amount of $875,000 pursuant to the agreement. From the date of the quote, Bandera takes six months to develop and produce the TV commercial, two weeks to complete the Facebook page, and three months to complete a fully functioning app. Bandera does not think the app will downloaded 500,000 times in the first month because Rockys customer base does not quickly accept newly developed technology. On the basis of its experience with similar technology, Bandera has determined that it takes over three months for Rockys users to begin to download its apps.

Banderas Chief Financial Officer, Erica Stone, is trying to understand the new revenue recognition model. You are the Chief Accounting Officer for Bandera. Stone has asked you to explain how Bandera would account for the above scenario under the new revenue recognition standard. Additionally, she would like to know how (or if) your conclusions would change if:

a. Bandera believed at the outset that the chance the app will be downloaded more than 500,000 times is approximately 75% and it is probable there will not be a significant reversal of revenue.

b. Bandera uses IFRS instead of U.S. GAAP for its financial statements.

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