Moran Consulting currently provides tax services to Weiss Inc. Weiss engages Moran to advise it on the sale of one of its subsidiaries. Moran Consulting receives a nonrefundable, up-front retainer fee of $100,000. Moran is also entitled to a success fee of 1.5% of the proceeds received when the subsidiary is sold. Read the requirements Requirement a. Should Moran combine the tax services contract with the advisory contract? Begin by analyzing the criteria. Indicate whether each criterion has been met and select an explanation for each. (Click the icon to review the explanations.) Met? Explanation Criterion 1. All parties to the contract have agreed to the contract and are committed to performing under the contract. 2. Each party's rights with respect to the goods or services that are being transferred are identifiable. 3. The payment terms for the goods or services that are being transferred are identifiable. The contract has commercial substance 5. It is probable that the seller will collect the consideration to which it is entitled in exchange for the goods or services. 7 Should Moran combine the tax services contract with the advisory contract? O A. Yes, Moran should combine the tax services contract with the advisory contract. OB. No, the advisory contract is a separate contract. Requirement b. Identify the performance obligations in the advisory contract. O A. Moran provides advisory services in the contract that represent two performance obligations - ongoing advice on the sale of the subsidiary and the actual sale of the subsidiary. The advisory services are considered one performance obligation because they fulfill the second condition to be distinct: a promise to transfer a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. O B. Moran provides advisory services in the contract that represent one performance obligation. The advisory services provide information/advice about the potential sale of a subsidiary. The advisory services are considered one performance obligation because they fulfill the second condition to be distinct: a promise to transfer a series of distinct goods or services that are substantially the same and have the same pattem of transfer to the customer. O c. There are possibly two performance obligations - ongoing advice on the sale of the subsidiary and the actual sale of the subsidiary. These two items appear to be distinct as two different fees are received in exchange for those services; $100,000 retainer fees for the ongoing advise and 1.5% success fee of the proceeds of the sale when the subsidiary is sold. OD. Moran provides advisory services in the contract that represent one performance obligation. The advisory services are considered one performance obligation because they fulfill the first condition to be distinct a promise to transfer a good or service, or a bundle of goods or services, that is distinct. c. a. Weiss pays a retainer and a success fee to Moran for the advisory services, separate from the tax services. b. Moran currently has Weiss as a customer. Given that Moran is willing to engage in another contract implies Moran believes it is probable it will receive collection. The provisions of the advisory contract in terms of the transfer of goods and services and the right to payment are not clearly specified. d. The contract will change Moran's future cash flows. Moran advises on the sale of the subsidiary, separate from providing tax services. f. Weiss engages Moran. Moran agrees to provide the services. g. A contract containing a retainer and a success fee does not have commercial substance. e. Requirement c. Determine the transaction price at the inception of the advisory contract. O A. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of $100,000 and the amount of the success fee is 1.5% of the proceeds received when the subsidiary is sold. The retainer is a fixed amount of $100,000 and can be included in the transaction price at the inception of the advisory contract. The amount of the success fee will vary with the sales proceeds. As a result, Moran will use the most-likely-amount approach to determine the amount to be included in the transaction price. OB. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of S100,000 and the amount of the success fee is 1.5% of the proceeds received when the subsidiary is sold. Both amounts can be included in the transaction price since Moran expects to received both amounts as a result of providing the advisory contract OC. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of $100,000 and the amount of the success fee is 1.5% of the proceeds received when the subsidiary is sold. The retainer is a fixed amount of $100.000 and can be included in the transaction price at the inception of the advisory contract. The amount of the success fee will most likely not be significant, as a result it will not be included in the transaction price. OD. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of $100,000 and can be included in the transaction price at the inception of the advisory contract. The amount of the success fee will vary with the sales proceeds Weiss receives when and if the subsidiary is sold. Moran should use the expected value method when estimating the sales proceeds. Because the estimated amount of the success tee is highly dependent on factors that are outside of Moran's influence (i.e. the final decision to sell the subsidiary), the success fee can't be included in the transaction price. Requirement Determine the allocation of the transaction price to the performance obligation O A. Moran must determine the standalone selling price for the tax services and advisory services using the residual approach. OB. The advisory contract is a single performance obligation, and therefore no allocation is needed. O c. Moran must determine the standalone selling price for the tax services and advisory services using the expected cost-plus-a-margin approach. OD. Moran must determine the standalone selling price for the tax services and advisory services using the adjusted market assessment approach. Requirement e. Determine when recognize revenue O A. Moran recognizes the $100,000 retainer, the fixed consideration, over the contract period. It will recognize the success fee or some portion of it, the variable consideration, when the cash is collected due to the high risk that a significant revenue reversal will not occur. O B. Moran recognizes the $100,000 retainer, the fixed consideration, over the contract period. It will recognize the success fee or some portion of it, the variable consideration, when it is probable that a significant revenue reversal will not occur. If the sale of the subsidiary occurs before the end of the contract period, Moran will recognize any unrecognized portion of the retainer and the success fee when the sale is final. OC. Moran recognizes the $100,000 retainer and the success fee over the contract period. OD. Moran recognizes the $100,000 relainer at the inception of the contract. It will recognize the success fee or some portion of it, the variable consideration, when it is probable that a significant revenue reversal will not occur. If the sale of the subsidiary occurs before the end of the contract period, Moran will recognize any unrecognized portion of the retainer and the success fee when the sale is final. Moran Consulting currently provides tax services to Weiss Inc. Weiss engages Moran to advise it on the sale of one of its subsidiaries. Moran Consulting receives a nonrefundable, up-front retainer fee of $100,000. Moran is also entitled to a success fee of 1.5% of the proceeds received when the subsidiary is sold. Read the requirements Requirement a. Should Moran combine the tax services contract with the advisory contract? Begin by analyzing the criteria. Indicate whether each criterion has been met and select an explanation for each. (Click the icon to review the explanations.) Met? Explanation Criterion 1. All parties to the contract have agreed to the contract and are committed to performing under the contract. 2. Each party's rights with respect to the goods or services that are being transferred are identifiable. 3. The payment terms for the goods or services that are being transferred are identifiable. The contract has commercial substance 5. It is probable that the seller will collect the consideration to which it is entitled in exchange for the goods or services. 7 Should Moran combine the tax services contract with the advisory contract? O A. Yes, Moran should combine the tax services contract with the advisory contract. OB. No, the advisory contract is a separate contract. Requirement b. Identify the performance obligations in the advisory contract. O A. Moran provides advisory services in the contract that represent two performance obligations - ongoing advice on the sale of the subsidiary and the actual sale of the subsidiary. The advisory services are considered one performance obligation because they fulfill the second condition to be distinct: a promise to transfer a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer. O B. Moran provides advisory services in the contract that represent one performance obligation. The advisory services provide information/advice about the potential sale of a subsidiary. The advisory services are considered one performance obligation because they fulfill the second condition to be distinct: a promise to transfer a series of distinct goods or services that are substantially the same and have the same pattem of transfer to the customer. O c. There are possibly two performance obligations - ongoing advice on the sale of the subsidiary and the actual sale of the subsidiary. These two items appear to be distinct as two different fees are received in exchange for those services; $100,000 retainer fees for the ongoing advise and 1.5% success fee of the proceeds of the sale when the subsidiary is sold. OD. Moran provides advisory services in the contract that represent one performance obligation. The advisory services are considered one performance obligation because they fulfill the first condition to be distinct a promise to transfer a good or service, or a bundle of goods or services, that is distinct. c. a. Weiss pays a retainer and a success fee to Moran for the advisory services, separate from the tax services. b. Moran currently has Weiss as a customer. Given that Moran is willing to engage in another contract implies Moran believes it is probable it will receive collection. The provisions of the advisory contract in terms of the transfer of goods and services and the right to payment are not clearly specified. d. The contract will change Moran's future cash flows. Moran advises on the sale of the subsidiary, separate from providing tax services. f. Weiss engages Moran. Moran agrees to provide the services. g. A contract containing a retainer and a success fee does not have commercial substance. e. Requirement c. Determine the transaction price at the inception of the advisory contract. O A. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of $100,000 and the amount of the success fee is 1.5% of the proceeds received when the subsidiary is sold. The retainer is a fixed amount of $100,000 and can be included in the transaction price at the inception of the advisory contract. The amount of the success fee will vary with the sales proceeds. As a result, Moran will use the most-likely-amount approach to determine the amount to be included in the transaction price. OB. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of S100,000 and the amount of the success fee is 1.5% of the proceeds received when the subsidiary is sold. Both amounts can be included in the transaction price since Moran expects to received both amounts as a result of providing the advisory contract OC. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of $100,000 and the amount of the success fee is 1.5% of the proceeds received when the subsidiary is sold. The retainer is a fixed amount of $100.000 and can be included in the transaction price at the inception of the advisory contract. The amount of the success fee will most likely not be significant, as a result it will not be included in the transaction price. OD. The transaction price includes both fixed and variable considerations. The retainer is a fixed amount of $100,000 and can be included in the transaction price at the inception of the advisory contract. The amount of the success fee will vary with the sales proceeds Weiss receives when and if the subsidiary is sold. Moran should use the expected value method when estimating the sales proceeds. Because the estimated amount of the success tee is highly dependent on factors that are outside of Moran's influence (i.e. the final decision to sell the subsidiary), the success fee can't be included in the transaction price. Requirement Determine the allocation of the transaction price to the performance obligation O A. Moran must determine the standalone selling price for the tax services and advisory services using the residual approach. OB. The advisory contract is a single performance obligation, and therefore no allocation is needed. O c. Moran must determine the standalone selling price for the tax services and advisory services using the expected cost-plus-a-margin approach. OD. Moran must determine the standalone selling price for the tax services and advisory services using the adjusted market assessment approach. Requirement e. Determine when recognize revenue O A. Moran recognizes the $100,000 retainer, the fixed consideration, over the contract period. It will recognize the success fee or some portion of it, the variable consideration, when the cash is collected due to the high risk that a significant revenue reversal will not occur. O B. Moran recognizes the $100,000 retainer, the fixed consideration, over the contract period. It will recognize the success fee or some portion of it, the variable consideration, when it is probable that a significant revenue reversal will not occur. If the sale of the subsidiary occurs before the end of the contract period, Moran will recognize any unrecognized portion of the retainer and the success fee when the sale is final. OC. Moran recognizes the $100,000 retainer and the success fee over the contract period. OD. Moran recognizes the $100,000 relainer at the inception of the contract. It will recognize the success fee or some portion of it, the variable consideration, when it is probable that a significant revenue reversal will not occur. If the sale of the subsidiary occurs before the end of the contract period, Moran will recognize any unrecognized portion of the retainer and the success fee when the sale is final