Part 2

On July 1, 2021, Video Solutions, Inc received a signed contract for $10.1 million (before the $100,000 credit for the old equipment) with all negotiated terms, as described in part 1. Taking the discount, ATT wired $9.5 million to VS two days after the contract was signed. In the interest of full and expanded disclosure, VS has decided not to apply the practical expedient in ASC 606-10-32-18.

On May 31, 2022, the system became fully operational. The system was tested and accepted by ATT. The old surveillance equipment was decommissioned when the new system was installed. The old equipment was shipped to VS by June 1. VS sold the old surveillance equipment during June for $132,000.

For the sake of simplicity, no financing component needs to be allocated to the maintenance part of the contract.

VS management has forecasted a cost of $8,051,000 for the equipment and integration required by the contract. It has forecasted the cost of the maintenance services at $249,000 over the five years.

INSTRUCTIONS for PART 2: (50 points) Prepare a second modified Accounting Issues Memo addressing the concerns of Video Solutions with respect to the last 2 steps of revenue recognition. By modified, I mean you can eliminate the inclusion of the Codification excerpts. Codification citations are required, as well as all other sections of the Accounting Issues memo.

• The client is uncertain about the allocation of the transaction price, if more than 1 performance obligation was identified in part 1.

• The client is uncertain when revenue may be recognized during the time of the contract.
• The client wants guidance as to the implications for its financial statements as of the May 31 and June 30, 2022. (Note: Even if you conclude that some journal entries should be recorded monthly, for purposes of this case, show the cumulative journal entries recorded for the months of May and June. Show all calculations.)

Writing will count. Your responses must be supported by properly referenced Codification excerpts.