You Are Not Alone Inc. (YANA) sells sophisticated custom designed security systems. YANA sells the systems in a package that includes video surveillance, motion detection, heat detection, biometric identification, access barriers, alarms and other security equipment (hereinafter "security equipment") that integrates the security equipment with the buyer's existing computer system.It does not sell the security equipment and the computer integration services separately. The security equipment cannot operate without being fully integrated with a computer system.YANA's competitors could theoretically provide the required computer integration services, however at this time there are no such competitors. Historically, YANA has not sold maintenance services. YANA has just begun selling maintenance services primarily to prevent competitors from gaining access to YANA's equipment and its computer code.

On January 2, 2018, the sales manager for YANA has just obtained a signed contract from Taciturn Bio Genetics (TBG) to provide security equipment and perform computer integration services at a cost of $14 million.The contract requires that security system be operational by December 31, 2018.TBG will not get control of the security equipment until the integration is completed and YANA turns control of the system over to TBG. YANA believes this system would also be valuable to TBG's competitors.

The contract price of $14 million includes a five-year maintenance agreement that will commence after the integration is completed and control of the system is turned over to TBG. As mentioned earlier, YANA has just begun selling maintenance services primarily to prevent competitors from gaining access to YANA's equipment. TBG has a great credit rating and always pays its bills. YANA's sales manager is very pleased because he will receive a 2% bonus based on the contract price of $14 million, and it is payable upon receipt of a signed contract.

YANA maintains a marketing group to work on contract proposals. The total annual cost for the marketing group is $700,000. On average, the marketing group works on 35 proposals each year. The security equipment and computer integration work will have a 25% to 40% margin.

In the initial proposal, the contract price with TBG was $14.5 million. However, as part of the contract negotiations YANA made two adjustments.First, TBG agreed to give YANA its old surveillance equipment in exchange for a credit of $300,000. It is expected that this old surveillance equipment will not be decommissioned until the new equipment is operational. Based on its extensive experience with similar arrangements, YANA's management believes it is probable that the estimated fair value of the TBG's old surveillance equipment at the contract inception date is $345,000. Second, YANA told TBG they would charge a fee of $800,000 for the five-year maintenance contract if the maintenance contact was priced separately. TBG informed YANA that several competitors were offering attractive pricing well below the $800,000 to obtain this maintenance work. In order get the maintenance work along with the equipment sale and integration services, YANA reduced the overall contract price by another $200,000.

Due to significant security concerns and recent losses of proprietary information, TBG also offered a bonus to YANA if the integration was completed early and YANA agreed to pay a penalty if the integration was completed late. YANA has a large number of contracts with completion bonus or penalty clauses similar to the contract with TBG. The schedule below shows the potential completion bonus or penalty and YANA's assessment of the likelihood of each scenario occurring.While no specific outcome is probable, YANA's management assessment of the likelihood of completing the integration in the specified time frame is based on significant historical experience with similar integration jobs.

Completed

Bonus

Penalty

Percentage

10 months

$140,000

17%

11 months

50,000

27%

12 months

0

$0

46%

13 months

(50,000)

7%

14 months

(100,000)

3%

15 months plus

(500,000)

0%

Total

100%

Based on significant previous experience with similar contracts, YANA forecasted a cost of $9.5 million for the cost of the equipment and integration services. YANA has just begun selling maintenance services and has estimated the cost of these services at $500,000.The cost will be incurred ratably over the period the services are being performed.

The contract is cancellable by TBG at any time.If the contract is cancelled by TBG, YANA has the right to keep all payments made by TBG prior to the cancellation date but is not entitled to any more compensation. The rights to any work in process will be retained by YANA and can be used by YANA as YANA sees fit.

Finally, under the contract, TBG agreed to pay YANA:

$6,000,000 due upon signing the contract on 1/1/2018

$3,000,000 due on 6/30/2018

$4,400,000 plus any completion bonus or minus any completion penalty at the time the security system first becomes operational, and

Five annual payments of $120,000 each for five years beginning on the first anniversary of the day the security system first became operational and continuing for the next four years.

The payment schedule does not confer a significant benefit of financing on either YANA or TBG.

Assignment Requirements:

YANA's Controller, your boss, Mr. McGee want to understand how the transaction between YANA and TBG will impact YANA's Financial Statements.YANA Is not an SEC filer, and will be applying ASC 606 for the first time in 2018.The private equity firm that has provided equity seed money to YANA requires YANA to provide semi-annual financial statements. Your requirements are:

A.Prepare Professional Research Memorandum

make a professional accounting research memorandum in proper form with reference to the appropriate sections of the FASB codification.

Review ASC 606 for the five steps in the revenue recognition model paying special attention to ASC Topics 340-40-25-2 and 340-40-25-3, ASC Topics 606-10-32-2 through 11, ASC Topics 606-10-32-21 through 24, ASC Topics 606-10-25-19 through 29, ASC Topics 606-10-32-31 through 35 and ASC 606-10-32-39 through 41.

For each of the five steps:

oAnalyze how each revenue model step applies to the transaction between YANA and TBG. Refer to the proper ASC Topic section in your memo. For any step that is not applicable, indicate it is "not applicable".

oDraw a conclusion as to whether the requirements for that step will be met or will not be met. Show any computations used in describing your conclusion.

B. Prepare Journal Entries that would be made at the following dates using the Journal Entry Template:

1.On January 2, 2018, the date the contract was signed, commission paid, and first payment received from YANA.

2.On June 30, 2018 when the second payment from YANA was received.Include in your journal entries any other recognition events, circumstances or transactions that occurred during the six months ended June 30, 2018 not recorded in 1 above.

3.On December 31, 2018 when you will assume the security system became operational, control of the system is given to TBG, and the third cash payment is received.You should include in your journal entries any other recognition events, circumstances or transactions that will occur during the six months ended December 31,2018.

4.On December 31, 2019 when the fourth cash payment from TBG was received.You should include in your journal entries any other recognition events, circumstances or transactions that will during the six months ended December 31,2019.

ELEMENT*

ACCOUNT DESCRIPTION

DEBIT

CREDIT

*A = Asset, L = Liability, E = Equity, R = Revenue. X = Expense, D = Dividend, UG = Unrealized Gain or Loss, GR = Realized Gain or Loss

C. Show the Financial Statement Impact from this transaction: What will be the Financial Statement impact of the TBG contract? Show accounts, amounts and any computations - you may need to post the journal entries prepared in B. above to ledger accounts to determine this information for Mr. McGee.

1.Six Months Ended june 30, 2018:

Balance Sheet (A=L+E):

Assets: 6000000

Liabilities:

Equity

Income Statement

Revenues

Expenses

Statement of Cash Flows

2.Six months Ended december 31, 2018:

Balance Sheet (A=L+E):

Assets:

Liabilities:

Equity:

Income Statement

Revenues

Expenses

Statement of Cash Flows

3.TWELVE months Ended december 31, 2019 (NOTE THIS IS FOR TWELVE MONTHS)

Balance Sheet (A=L+E):

Assets:

Liabilities:

Equity:

Income Statement

Revenues

Expenses

Statement of Cash Flows