Case A: Jarmey Construction Company entered into a contract with Membley Estate for constructing a high-end customized residential home for a specific member of the estate to be completed for a fixed price of $500,000. Nonrefundable progress payments are made according to an agreed schedule on a monthly basis for work completed during that month. Legal title to the construction material as well as house outfits are held by Jarmey Construction Company until the end of the construction project, but if the contract is terminated before the house is finished, Membley Estate will retain the partially completed job and must pay for any work completed to date.

Case A: Assume the same facts in Case A except that legal title to the house passes to Membley Estate upon completion of the building work. If Membley cancels the contract before the house is completed, Jarmey Construction Company removes all the installed outfits and Membley Estate must reimburse Jarmey Construction Company for any loss of profit on sale of the house to another customer.

Case C: On January 1, the CostCutter Company, a business appraiser firm, entered into a five-month contract with Bami Food Factory. The contract requires CostCutter Company to analyze Bamis cost structure in order to find ways to reduce operating costs and hopefully increase profits. CostCutter agrees to share its findings with the factory every three weeks and to provide the factory with a final analytical report at the end of the contract. This service is customized to Bami Food Factory and Cost-Cutter would need to restart from scratch if it provided a similar service to another client for similar type work. Bami Food Factory promised to pay the $3,000 per month. If Bami chooses to terminate the contract, it is entitled to receive a report with details of the analysis completed to that date.

Required:

For each of the scenarios described above,

1. Determine the number of performance obligations involved in each scenario.

2. Determine whether the seller should recognize revenue (a) over time or (b) upon completion. Explain your answer.