Case 17-7 Mesmerizing Markcters(MM) is a markcting company that offers a varicty of marketing offerings to its customers. Specifically MM will create a TV commercial for S1M, build an app for $500x, and build a Faccbook page for $250K. These amounts represent MM's charges for these items when MM sells them separalely to customers. The TV commercial, the app, and the Facebook page are not interrelatod; that is, each functions independently of the other offerings If a customer purchases all aforementioned itcms togethcr, the total cost is S1.SM Payment terms are S0 percent consideration due at centract signing, with the remaining 50 percent due over the rest of the developmment period (25 percent at mid-point 25 pereent atl completion) If the app is downloaded 500K times or more in the first moeth, there is a one-time bonus of $250K payable to MM . Stone, a customer, appeoaches MM with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with MM that is based on MM's unsigned quote to Stone on November 30, 20x5, for one TV commercial, one app, and a Facebook page. The agreement creates enfoeceable rights and obligations pursuant to MM's customary business practices. None of these inems can be redirected by MM to another customer. MM perfoemed a credit check on Stone and has determined that Stone has the intention and ability to pay MM fe fulfilling its portion of the contrct Stone is roquired to pay MM for performance complctod to date if Stone cancels the contract with MM foe reasons other than MM's failure to perform under the contract as promised Stone makes a payment on November 30, 20XS, in the amount of $750K pursuant to the agroement. From the daie of the quole, it takes MM six months to develop and produce the TV commercial, twe weeks to complete the Facebook page, and three months to complete a fully functioning app MM does not think that the app will be downloaded 500K times in the first month because Stone 's customer base does not quickly accept newly devcloped technology. On the basis of its experience with similar technology, MM has determined that it takes over three months for Stone's users to begin to download its apps. Required MM's CFO is trying to understand the new revenue recognition model and has asked you to explain how MM wosald account for the above scenario under the new standard I How should MM account foe the above offering with Sioee under the new revenue eecognition model? 2. How would your conclusions change if The app sold to Stone is actually downloaded more than 500K times in the first month? Case 17-7 Memerining Makeners Page 2 b. MM believed at the outset that there is about a 75 percent chance that the app will be downloaded more than 500K times and it is probable that there will not be a significant reversal of revenue Case 17-7 Mesmerizing Markcters(MM) is a markcting company that offers a varicty of marketing offerings to its customers. Specifically MM will create a TV commercial for S1M, build an app for $500x, and build a Faccbook page for $250K. These amounts represent MM's charges for these items when MM sells them separalely to customers. The TV commercial, the app, and the Facebook page are not interrelatod; that is, each functions independently of the other offerings If a customer purchases all aforementioned itcms togethcr, the total cost is S1.SM Payment terms are S0 percent consideration due at centract signing, with the remaining 50 percent due over the rest of the developmment period (25 percent at mid-point 25 pereent atl completion) If the app is downloaded 500K times or more in the first moeth, there is a one-time bonus of $250K payable to MM . Stone, a customer, appeoaches MM with the hopes of reinventing its image to a younger customer base. Stone has a verbal agreement with MM that is based on MM's unsigned quote to Stone on November 30, 20x5, for one TV commercial, one app, and a Facebook page. The agreement creates enfoeceable rights and obligations pursuant to MM's customary business practices. None of these inems can be redirected by MM to another customer. MM perfoemed a credit check on Stone and has determined that Stone has the intention and ability to pay MM fe fulfilling its portion of the contrct Stone is roquired to pay MM for performance complctod to date if Stone cancels the contract with MM foe reasons other than MM's failure to perform under the contract as promised Stone makes a payment on November 30, 20XS, in the amount of $750K pursuant to the agroement. From the daie of the quole, it takes MM six months to develop and produce the TV commercial, twe weeks to complete the Facebook page, and three months to complete a fully functioning app MM does not think that the app will be downloaded 500K times in the first month because Stone 's customer base does not quickly accept newly devcloped technology. On the basis of its experience with similar technology, MM has determined that it takes over three months for Stone's users to begin to download its apps. Required MM's CFO is trying to understand the new revenue recognition model and has asked you to explain how MM wosald account for the above scenario under the new standard I How should MM account foe the above offering with Sioee under the new revenue eecognition model? 2. How would your conclusions change if The app sold to Stone is actually downloaded more than 500K times in the first month? Case 17-7 Memerining Makeners Page 2 b. MM believed at the outset that there is about a 75 percent chance that the app will be downloaded more than 500K times and it is probable that there will not be a significant reversal of revenue