The proposal was comprehensive, and included a detailed market analysis for similar products and the steps required to prepare the product for the market. Per the proposal, ZD lined up three commitments (along with non-disclosure agreements) from its clients that were interested in purchasing a version of MRM's software. Additionally, two other clients expressed interest, but needed more time to determine whether the software was suitable for their needs. Overall, the analysis indicated a high demand for such a product in a few key industries. For the software to be marketed, Z.D suggested that the current CRM application would require a re-designed graphical user interface, significant new coding (approximately 50 percent of the coding in MRM's in-house system would need to be replaced) in an updated programming language, and intensive beta testing. After agreeing to ZD's proposal, the creation of the software product was initiated on March 1. While ZD professionals were responsible for building the software product, the contract clearly stipulated that MRM controlled the development of the product, thereby assuming all risks during and after the development process. Additionally, MRM was to control the software after completion of the project and was responsible for fulfilling the contracts with all customers (including the three commitments from Z.D clients). Table 4 provides a timeline of the development process and the cumulative cost incurred in 2019 for the project. While the finished product contained features and functionality not present on the CRM system developed in 2018 and used by MRM, the work performed by Z.D did allow MRM to improve the functionality of its in-house system. The contract between MRM and the three customers stipulated that the software version completed on August 31 would be installed on the customers' servers by MRM employees on September 15. The agreed-upon price was $500,000 per customer, payable in two installments ($250,000 on September 15 and $250,000 on December 19). Because this was the first product offered by the company, the sales price did not include any software upgrades or customer support. However, ZD offered each customer a separate customer support contract with no involvement by MRM. By the end of 2019, MRM had focused significant resources on marketing the product to potential customers. Main Case Requirements While Ms. Larson is confident with regard to the U.S. GAAP reporting of the CRM system developed in 2018 and used by MRM, she is less certain as to the accounting for the software product developed for customers in 2019 due to the unique nature of the transaction as it relates to the company's business. You have been asked to research the relevant guidance to determine the proper course of action for the 2019 financial statements. Specifically, Ms. Larson is interested in how the fees paid to ZD for the activities from March 1-August 31 should be accounted for and how these costs, along with the fees generated from the three customers, should be presented on the 2019 financial statements. As part of this task, you should perform the following activities: (1) Consult the Financial Accounting Standards Board Accounting Standards Codification to find appropriate guidance on the issues presented in the case. TABLE 4 Timeline for Development of 2019 Software Cumulative Date Milestone 2019 Cost March 1, 2019 ZD initiates design of new graphical user interface $0 May 13, 2019 Z.D completes graphical user interface design and commences additional coding $1,135,000 July 23, 2019 ZD completes working model for the software that is ready for beta testing with $3,083,000 three confirmed customers August 31, 2019 Beta testing is completed by ZD $3,758,000 September 15, 2019 Three customers purchase software $3,758,000