Please can you answer question Q1

Chameleon Network is a producer and distributor of motion picture films. It specializes in action adventure films popular with males, mostly in the teen and young adult market. While it has only been in business for seven years, it has produced several moneymaking hits as well as many more minor "B" films that are shown on cable networks and through the Internet.

Chameleon Network has recently completed the production of five new films. This set of five films contains one film (Ultimate Adventures) that marketing research indicates will be a top box office hit. The other four (UA II, UA III, UA IV, UA V) are "filler" films that will be bundled with the hit and licensed to theaters for exhibition. To receive access to the hit, theaters must agree to show all films a minimum number of times.

In July 2018, Chameleon Network entered into an exclusive contract with Spotlight Theaters, Inc. (Spotlight), a large theater chain with approximately 490 theaters across the United States. This contract provided in part as follows:

Agreement: Spotlight is granted the right, license, and permission to display the five films listed herein during the contract period. In consideration of this contract, Chameleon Network will receive:

1. A contract (arrangement) fee of $6,000,000, payable $3,000,000 upon contract signature and $3,000,000 on September 1, 2018.

2. $600 for each film showing in each location.

Contract period: The contract period shall be the six months commencing on September 1, 2018.

Limitation on screenings: Spotlight agrees to show Ultimate Adventures no fewer than 42 times per theater and the four accompanying films (UA II, UA III, UA IV and UA V) no fewer than 18 times each per theater.

Exclusivity: Spotlight shall have exclusive screening rights during the contract period. Chameleon Network acknowledges that an integral inducement in consideration of the contract is Spotlights interest in being the sole source, without competition from other theaters in the market, during the contract period.

At the signing of the contract, Spotlight paid $3,000,000 of the $6,000,000.

Spotlight sent checks to Chameleon Network for $3,000,000 on September 1, 2018, and $6,489,000 on January 20, 2019, along with an audited statement detailing the number of showings as of December 31, 2018. The following is a summary of that information:

Film	Number of Showings	Amount Due
Ultimate Adventures	8,490	$5,094,000
UA II-V	2,325	1,395,000
	10,815	$6,489,000

In March 2019, Chameleon Network received a demand notice from Spotlight that all monies previously paid were to be returned or they would file a lawsuit. In their letter, they enclosed a newspaper clipping from a movie theater in Toronto, Canada that was advertising the set of five films for showing the second week of February 2019.

The CEO of Chameleon Network has hired your consulting firm to produce a report on this possible breach of contract case, including recommendations. Use the report writing guide from the course website. In your analysis of this case include answers to the following questions.

Q. 1. Did Chameleon Network breach the 2018 contract with Spotlight ? Specially, discuss whether the showings by a movie theater in Toronto, Canada constituted a violation of the Chameleon Network and Spotlight agreement.

Q.2 Assuming the contract is valid, prepare the following financial analyses :

a. Prepare a budget of expected minimum revenues under the contract. Show the sources of revenues from the set of five films and the fee.

b. How much revenue should Chameleon recognize in the year ended 12/31/2018 ? Explain the rationale for your answer.

c. For the year ended 12/31/2018, prepare a schedule that shows the cash flows received from Spotlight from the contract.

d. Why do cash flows and revenues recognized differ, if they differ under your calculations ?

Note : To the extent that you may recognize any antitrust issues ( which we would not expect )

In preparing your report remember LDC financial accounting concept 5 ( cash flow vs. GAAP income), financial accounting concept 8 ( understanding the timing of revenue recognition ). management accounting concept 5 ( understanding how budget revenue). and business law concept 1 ( offer and acceptance of contracts; enforcement of contracts : interpreting the parties' intent).