Upscale Management Co. (the “Company”) enters into a contract with Second City Hotels (the “Customer”) to provide hotel management services. The contract is for a five- year period at a fixed price of $10,000 per day (total transaction price of $18.25 million [$10,000 per day × 1,825 days]). The Company’s hotel management services include hiring and managing employees, procuring goods and services, and advertising and marketing at one hotel property owned by the Customer. On a given day, the Company might clean guest rooms, perform marketing efforts to increase occupancy, and operate the concierge desk. The nature of the contract is to provide integrated hotel management services (“integrated services”) over the term of the contract and not a specific quantity of specified services (e.g., cleaning 100 guest rooms per day). The underlying activities can vary significantly from day to day; however, the daily activities are required to satisfy the Company’s obligation to provide integrated services. Therefore, the integrated services transferred to the customer are substantially the same during each period (i.e., the Customer receives substantially the same benefit each period). In March 2020, the World Health Organization declared COVID-19 a global pandemic. The COVID-19 pandemic and related travel restrictions and other containment efforts have had a significant impact on the travel industry. As a result, after providing two years of integrated services (for which the Company recognized $7.3 million in revenue [$10,000 per day × 365 days per year × 2 years]), because of the economic downturn resulting from the COVID-19 pandemic, the Company agrees to lower the price for the remaining three years of integrated services to $8,000 per day. The following is additional information related to the contract: • At inception, the contract met the criteria in ASC 606-10-25-1 to be accounted for as a contract with a customer. 

• Each daily increment of service is distinct, meets the criteria for recognizing revenue over time, and has the same method for measuring progress. Therefore, the Company concluded that the series of integrated services satisfy the requirements of ASC 606-10-25-14(b) to be accounted for as a single performance obligation. 

• The change in the price of the contract is approved by both parties to the contract. There were no other changes to the terms of the contract. 

• The Company has no history of granting price concessions, and the price concession is not related to the quality of the services transferred. 

• The Company believes that the Customer has the intent and ability to pay the updated agreed-upon price when it is due. Case 22-4c: Upscale Management Co. Page 2 Copyright © 2022 Deloitte Development LLC All Rights Reserved.

Required:

1. Is the impact of the COVID-19 pandemic and the resulting price concession indicative of a significant change in facts and circumstances under ASC 606-10- 25-5, necessitating a reassessment of the ASC 606-10-25-1 criteria to be accounted for as a contract with a customer?

2. If the ASC 606-10-25-1 criteria continue to be met, does the price concession represent a change in transaction price or a contract modification?

3. What is the resulting accounting treatment for the price concession under