Solar Power Inc, (SPI) is a public company manufacturing and distributing solar panels. SPI has been in existence for 10 year the last three have been as a public company. To date, the company has experienced growth rates slightly higher than industry averages, historically, However, due to the high demand for solar panels and a potentially growing market in Canada, Management decided to open its own manufacturing facility in Canada. To Finance this growth, the company obtained a bank loan. The maximum amount of the loan outstanding at any time cannot exceed three times the company's last 12 months' EBITDA (earnings before interest, taxes, depreciation, and amortization). The company is required to file interim statements with the banker so that EBITDA amount can be monitored. SPI primarily sells two types of products: RHP-1 and CSP-2. RHP-I products are solar panels that the company manufactures for residual use only. These products are sold primarily to individual home owners and home builders. The panels come in five different sizes that are suitable for installation on residential house roofs. CSP-2 products are solar panels that are imported from a German supplier and are sold to the commercial market to be used on large commercial buildings. For these products, SPI acts as a distributor. These panels come in eight different sizes. Both types of products can be installed either when the building is being constructed or any time after the com-pletion of the budding. The company sells all of the accessories required to install these panels. SPI also provides services for installation and consulting. In most cases, installation is for the products that SPI sells, although the company has started to provide installation services to other solar panel sellers in the industry. Consulting contracts are generally per-formed for companies looking for energy cost reduction solutions. During 20X9, SPI entered into the following contracts:
1. On 16 March, SPI signed a contract with Sharone Company for a total $4 million. Sharone was building a new addition to its manufacturing facility and has decided to install solar panels to reduce its annual operating electricity costs. The contract price includes the CSP-2 solar panels, installation, a two-year warranty and a five-year maintenance agreement that starts as soon as installation is completed. Separate selling prices for the panels and installation and a one-year maintenance contract are $3,200,000 for the
panels and installation and $300,000 each year for the maintenance contract. Gener-ally, the panels can be installed within four months of the date the contract is signed. A nonrefundable deposit of 10% of the contract is due on the signing of the contract. Another 75% is due on delivery and installation. The remaining 15% is due six months or later after the installation date when all deficiencies have been resolved. Delivery and installation was completed on 31 August 20X9. The warranty is for assurance that the product will work within its specifications. SPI estimates that based on past experience, warranty costs will be approximately $150,000 on this size of contract. The company has recognized $3.3 million in revenue for 20X9.
2. On 5 May, SPI entered into a contract with Bakers Builders Inc. to supply RHP-1 panels. Bakers is a home builder that is currently building 3,000 homes that are energy efficient. However, Baker does not want to take delivery until the panels are needed. Baker has agreed to be invoiced for all of the panels but will ask for delivery at different points in time for the next six months. The total contract amount of $6,000,000 was invoiced to Baker on 15 May and Baker paid the full amount on 18 June. The panels are ready for delivery and have been set aside in a separate part of the warehouse. It is expected that there will be still 15% of the panels left to be delivered by the end of SPI's fiscal year-end. The company reported revenue of $5.1 million related to this contract in 20X9.
3. On 8 September, SPI entered into a unique agreement for the sale and installation of CSP-2 panels on the building of a local restaurant. The restaurant's owner, Fred Mason, is planning to sell most of the electricity generated back to the grid. As he currently does not have the cash flow to finance the upfront cost of the panels and installation, he has proposed that SPI receive payment for these panels based on 50% of the amount of credit that Mason receives when he sells the power back to the grid. The amount would be determined monthly and immediately remitted to SW for a period of two years from the date of installation. The normal selling price of this installation would have been $20,000, and management believes that this contract may yield $25,000 or more over the two-year period. The installation was completed on 10 October and the two year period commenced on this date. SPI recorded a sale and related receivable of $25,000 in October. To date, SPI has received $2,700 from Mason, which was recorded against the account receivable.
4. During 20X9, SPI entered into an arrangement with Solutions Co. to distribute its RHP-1 product in all of Solution's retail stores. The contract specifies the following: (a) Solution Ca will have some product on hand for demonstration purposes, which will be given at no cost. (b) Once the customer decides he or she wants to make a purchase, Solutions will call the order into SPI. Solutions will invoice the customer and be responsible for collection. Solutions will be required to remit to SPI on the date of invoice 85% of the sale proceeds; Solution may retain 15%. SPI will ship the product directly to the customer's home and install the product, if requested by the customer.
It is now one month before the fiscal 31 December 20X9 year-end. You have just been hired as an accounting manager responsible for the revenue reporting for the company. The CFO has asked you to prepare a memo outlining how SPI should recognize the revenue from these four contracts during 20X9. Particularly, the CFO wants you to identify the impact on the SFP and SCI and state how this will impact the amount of financing available.

Required:
Prepare the memo, as requested.