StoneEdge has a verbal agreement with LM that is based on LM’s unsigned quote to StoneEdge on March 31, 2020, for one TV commercial, one app, and social media pages. For a customer of StoneEdge’s size, if offered separately, LM charges $1.2M to create a TV commercial, charges $650K as a one-time cost to build an App, and $150K as a one-time cost to build various social media pages. The TV commercial, the app, the social media pages are not interrelated; that is, each function independently of the other offerings. The contract offered to StoneEdge includes the following:

• As StoneEdge is purchasing all development services (TV commercial, App, social media pages) as a package, LM offers a discount of 15% (total up-front cost is $1.7M).
• Payment terms for the package 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 at 3 months, 25 percent at completion).
• If the App is downloaded 500,000 times or more in the first month that it is launched, there is a one-time bonus of $250K payable to LM.

StoneEdge has a verbal agreement with LM that is based on LM’s unsigned quote to StoneEdge on March 31, 2020, for the service described above. The agreement creates enforceable rights and obligations pursuant to LM’s customary business practices. None of these items can be redirected by LM to another customer. LM performed a credit check on StoneEdge and has determined that StoneEdge has the intention and ability to pay LM for fulfilling its portion of the contract. StoneEdge is required to pay LM for performance completed to date for the television commercial, social media pages and App development if StoneEdge cancels the package contract with LM for reasons other than LM’s failure to perform under the contract as promised.

StoneEdge makes a payment on March 31, 2020. The payment consists of $850K pursuant to the agreement. From the date of the quote, it takes LM six months to develop and produce the TV commercial, two weeks to complete the social media pages, and three months to complete a fully functioning App. LM does not think that the app will be downloaded 500,000 times in the first month because StoneEdge’s customer base does not quickly accept newly developed technology. Based on its experience with similar technology, LM has determined that it takes over three months for StoneEdge’s users to begin to download its Apps.

• How should HM account for the above offering with StoneEdge under the new revenue recognition model? You can assume that none of the criteria is met in ASC 606-10-25-27.