Consider each of the following scenarios:
a. A seller orally agrees with one of its best customers to deliver goods in exchange for $ 10,000. While the seller’s practice is to obtain a written sales agreement, the seller delivered these goods to the customer without a written agreement due to the customer’s urgent need.
b. A seller agrees to provide accounting services to a customer for the next year in exchange for $ 40,000. While the two parties are negotiating the terms of the agreement and the specific services to be performed, the seller begins to perform some services as a gesture of good faith.
c. A seller has a written agreement to deliver goods to a customer for $ 50 per unit. The price will drop to $ 45 per unit if the customer purchases more than 2,000 units per month.
d. A seller had a written agreement and provided custodial services to a customer for $ 2,000 per month in a previous year. The contract expired on December 31, 2016. During negotiations for a new contract in January 2017, custodial services were provided at the previous monthly rate and paid for by the buyer. The seller and the customer agree to a new contract on February 1, 2017. The seller is concerned whether a contract existed in January 2017 and whether revenue can be recognized.
Required:
1. Determine if a contract exists for each of the scenarios.
2. If it is determined that a contract exists but the seller believes it is probable that it will not collect the expected consideration, how does this affect the seller’s ability to recognize revenue?