Montauk Marketers (MM) is a marketing company that offers a variety of marketing offerings to its customers. Stone, a customer, approaches MM with the hopes of reinventing its image to a younger customer base. MM offers the following to Stone: MM will create a TV commercial, build an app, and build a social media page. When MM sells these separately to customers, MM charges $1M for the TV commercial, $500K for the app, and $250K for the social media page. The TV commercial, the app, and the social media page are not interrelated; that is, each functions independently of the other offerings. MM is offering Stone all aforementioned items together for a contract price of $1.5M. Payment terms are 50 percent consideration due at contract signing, with the remaining 50 percent due over the rest of the development period (25 percent at mid-point, 25 percent at completion). Stone has a verbal agreement with MM that is based on MMs unsigned quote to Stone on November 30, 2021, for one TV commercial, one app, and a social page for total consideration of $1.5M and payment terms noted above. The agreement creates enforceable rights and obligations pursuant to MMs customary business practices. None of these items can be redirected by MM to another customer. MM performed a credit check on Stone and has determined that Stone has the intention and ability to pay MM for fulfilling its portion of the contract. Stone is required to pay MM for performance completed to date if Stone cancels the contract with MM for reasons other than MMs failure to perform under the contract as promised. Stone makes a payment on November 30, 2021, in the amount of $750K (50% of total consideration of $1.5M) pursuant to the agreement. From the date of the quote, it takes MM six months to develop and produce the TV commercial, two weeks to complete the social media page, and three months to complete a fully functioning app.

Required

MMs CFO is trying to understand the new revenue recognition model and has asked you to

explain how MM would account for the above scenario under the new standard. In order to help MMs CFO, you will need to research the new accounting standard using the FASB Codification. Here are instructions for doing so: Go to the website (http://asc.fasb.org)

QUESTIONS

1-provide an assessment of whether a contract exists between MM and Stone, utilizing FASB guidance.

2-Next, please identify the performance obligations set forth in the contract. For each one, explain why it qualifies as a performance obligation according to the FASB guidance.

3-Finally, how would MM allocate the transaction price to the performance obligations you identified in #3, according to FASB guidance? (Please provide computational support for your allocation of the transaction price to the specific performance obligations included in the contract.)