E3-4

Existence of a contract (LO 3-2)

Lemon Corporation and Morley, Inc., have entered into an arrangement whereby Lemon will supply materials and 1,000 hours of its scientists time for a project to be undertaken at Morleys research facility in Austin, TX. Morley will also contribute its scientists time to the project.

Required:

For each of the following independent scenarios, does Lemon have a contract with a customer subject to ASC Topic 606?

1. Lemon has agreed to provide materials and scientists time in exchange for a payment from Morley based on the quantities of each resource contributed.
2. Lemon has agreed to provide materials and scientists time in exchange for a percentage of the profits from the sale of the product developed jointly by Lemon and Morley.