Software Services or Processing Services The Loan Platform is delivered to the Bank as a service...

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Software Services or Processing Services The Loan Platform is delivered to the Bank as a service in the form of the Processing Services That is, no software license is transferred to the Bank. I The Software Services commence on July 1, 20X1, and continue through December 31, 20X1. The Processing Services commence on January 1, 20X2, and continue for a term of five years. The contract requires the Bank to pay the Company nonrefundable fees of $3 million at the commencement of the Software Services (i.e., on July 1, 20X1) and $3 million over the period in which the Company will provide the Processing Services (i.e., equal monthly installments between January 1, 20X2, and December 31, 20X7 ). Neither party has a unilateral option to extend the contract, but the parties are free to negotiate an extension if desired. The Company concludes the following: 1. The provisions of FASB Accounting Standards Update (ASU) No. 2014 -09, Revenue From Contracts With Customers (Topic 606), and related amendments are effective for the Company. 7 2. The Company's customer as defined in FASB Accounting Standards Codification (AS C) Overall, is the Bank (as Subtopic 606-10, Revenue From Contracts With Customers opposed to the mortgage loan applicants). 3. The arrangement is within the scope of ASC 606-10 and meets the criteria in ASC 60610 - 25-1 to be considered a contract with a customer. 4. Any explicit or implicit Services are immaterial 5. The total transaction contractually stated promises other than the Software Services and the Processing in the context of the contract and need not be considered . price, as described in ASC 606-10-32-3, is the sum of the fees (i.e., $6 million ). - 6. The Software Services are required to be performed to create the customized Loan Platform that the Company will use to provide the Processing Services to the Bank. In other words, the Software Services are integral to the Bank's ability to derive its intended benefit from the Processing Services. The Bank does not derive value from the Software Services; rather, it derives value from the Processing Services. However, the Processing Services cannot begin until the Software Services are complete (i.e., until a Loan Platform that meets the Bank's specifications has been developed ). Required: Do the Software Services constitute a performance obligation as defined in ASC 606-10 ? How much revenue , if any, should the Company recognize through December 31, 20X1 ? 1. 2. Software Services or Processing Services The Loan Platform is delivered to the Bank as a service in the form of the Processing Services That is, no software license is transferred to the Bank. I The Software Services commence on July 1, 20X1, and continue through December 31, 20X1. The Processing Services commence on January 1, 20X2, and continue for a term of five years. The contract requires the Bank to pay the Company nonrefundable fees of $3 million at the commencement of the Software Services (i.e., on July 1, 20X1) and $3 million over the period in which the Company will provide the Processing Services (i.e., equal monthly installments between January 1, 20X2, and December 31, 20X7 ). Neither party has a unilateral option to extend the contract, but the parties are free to negotiate an extension if desired. The Company concludes the following: 1. The provisions of FASB Accounting Standards Update (ASU) No. 2014 -09, Revenue From Contracts With Customers (Topic 606), and related amendments are effective for the Company. 7 2. The Company's customer as defined in FASB Accounting Standards Codification (AS C) Overall, is the Bank (as Subtopic 606-10, Revenue From Contracts With Customers opposed to the mortgage loan applicants). 3. The arrangement is within the scope of ASC 606-10 and meets the criteria in ASC 60610 - 25-1 to be considered a contract with a customer. 4. Any explicit or implicit Services are immaterial 5. The total transaction contractually stated promises other than the Software Services and the Processing in the context of the contract and need not be considered . price, as described in ASC 606-10-32-3, is the sum of the fees (i.e., $6 million ). - 6. The Software Services are required to be performed to create the customized Loan Platform that the Company will use to provide the Processing Services to the Bank. In other words, the Software Services are integral to the Bank's ability to derive its intended benefit from the Processing Services. The Bank does not derive value from the Software Services; rather, it derives value from the Processing Services. However, the Processing Services cannot begin until the Software Services are complete (i.e., until a Loan Platform that meets the Bank's specifications has been developed ). Required: Do the Software Services constitute a performance obligation as defined in ASC 606-10 ? How much revenue , if any, should the Company recognize through December 31, 20X1 ? 1. 2.

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Step 12 1 Do the software services constitute a performance obligation as defined in both ASC 606 an... View the full answer