Suppose that you are the sales manager for a construction company and you are responsible for securing contracts. As part of the negotiations to construct a new production facility for a customer, you attached a "sweetener" to the contract in the form of an agreement to supply raw materials to the customer at a fixed price over an extended period of time. The price specified in the agreement is the materials' fair market value at the time the construction contract was signed.
Required:
a. What does the accounting department need to know about the "sweetener" to appropriately account for this agreement?
b. Should the financial statements report this transaction? If so, how?
c. Under what circumstances might your answer to part "b" change?
d. What should be disclosed to the shareholders about this agreement?