Identifying a Contract

Consider each of the following scenarios:

a.	A seller orally agrees with one of its best customers todeliver goods in exchange for $10,000. While the seller's practiceis to obtain a written sales agreement, the seller delivered thesegoods to the customer without a written agreement due to thecustomer's urgent need.
b.	A seller agrees to provide accounting services to a customerfor the next year in exchange for $40,000. While the two partiesare negotiating the terms of the agreement and the specificservices to be performed, the seller begins to perform someservices as a gesture of good faith.
c.	A seller has a written agreement to deliver goods to a customerfor $50 per unit. The price will drop to $45 per unit if thecustomer purchases more than 2,000 units per month.
d.	A seller had a written agreement and provided custodialservices to a customer for $2,000 per month in a previous year. Thecontract expired on December 31, 2016. During negotiations for anew contract in January 2017, custodial services were provided atthe previous monthly rate and paid for by the buyer. The seller andthe customer agree to a new contract on February 1, 2017. Theseller is concerned whether a contract existed in January 2017 andwhether revenue can be recognized.

Required:

1. Determine if a contract exists for each of the scenarios.

a.	, a contract . An oral contract represent an enforceablecontract the contract is approved by both parties, each party'srights can be identified, the payment terms can be identified, thecontract has commercial substance, and it's probable that thecompany will collect the consideration to which it is entitled. Allof these conditions appear to be in this scenario.
b.	, a contract . A company able to identify each party's rightsregarding the goods or services to be transferred. Because theserights have established and be identified, a company assess whencontrol has been transferred and, therefore, revenue berecognized.
c.	, this represent a contract. The payment terms to be fixed butcan vary due to sales incentives such as rebates.
d.	, a contract exist in January 2017. While this requiresjudgment, the fact that the seller performed services and thecustomer paid for these services implies that enforceable rightsand obligations existed in January 2017. , revenue be recognizedeven though final contract negotiations were not complete.

2. If it is determined that a contract exists but the sellerbelieves it is probable that it will not collect the expectedconsideration, how does this affect the seller's ability torecognize revenue?

If it is probable that the seller will not collect the expectedconsideration in exchange for goods or services that it haspromised to transfer to the customer, any amounts that the sellerdoes not expect to collect will the transaction price. Thisadjusted transaction price will be the starting point to apply theremaining steps of the revenue recognition model.

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