ACCT 361 Lecture Notes - Lecture 2: Nordstrom, Is Is, Kurt Nilsen

LMC Solutions(LMC) is a publicly-traded marketing company that offers a variety of marketing offerings to its customers. Specifically:

• LMC will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent LMC’s charges for these items when LMC sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings.

• If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms 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, 25 percent at completion).

• If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to LMC.

Acme Equipment Co., a customer, approaches LMC with the hopes of reinventing its image to a younger customer base. Acme has a verbal agreement with LMC that is based on LMC’s unsigned quote to Acme on January 15, 2018, for one TV commercial, one app, and a Facebook page. The agreement creates enforceable rights and obligations pursuant to LMC’s customary business practices. None of these items can be redirected by LMC to another customer. LMC performed a credit check on Acme and has determined that Acme has the intention and ability to pay LMC for fulfilling its portion of the contract. Acme is required to pay LMC for performance completed to date if Acme cancels the contract with LMC for reasons other than LMC’s failure to perform under the contract as promised.

Acme makes a payment on January 15, 2018, in the amount of $750K pursuant to the agreement. From the date of the quote, it takes LMC six months to develop and produce the TV commercial, two weeks to complete the Facebook page, and three months to complete a fully functioning app. LMC believes there is 40% chance that the app will be downloaded 500K times in the first month.

Required: Explain how LMC will determine the appropriate amounts of revenue to recognize under this contract. Your explanation should include all steps LMC must complete in the revenue recognition process and should identify the amounts and timing of LMC’s recognition of revenue. Cite appropriate authoritative support for your answer.

LMC Solutions(LMC) is a publicly-traded marketing company that offers a variety of marketing offerings to its customers. Specifically: • LMC will create a TV commercial for $1M, build an app for $500K, and build a Facebook page for $250K. These amounts represent LMC’s charges for these items when LMC sells them separately to customers. The TV commercial, the app, and the Facebook page are not interrelated; that is, each functions independently of the other offerings. • If a customer purchases all aforementioned items together, the total cost is $1.5M. Payment terms 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, 25 percent at completion). • If the app is downloaded 500K times or more in the first month, there is a one-time bonus of $250K payable to LMC. Acme Equipment Co., a customer, approaches LMC with the hopes of reinventing its image to a younger customer base. Acme has a verbal agreement with LMC that is based on LMC’s unsigned quote to Acme on January 15, 2018, for one TV commercial, one app, and a Facebook page. The agreement creates enforceable rights and obligations pursuant to LMC’s customary business practices. None of these items can be redirected by LMC to another customer. LMC performed a credit check on Acme and has determined that Acme has the intention and ability to pay LMC for fulfilling its portion of the contract. Acme is required to pay LMC for performance completed to date if Acme cancels the contract with LMC for reasons other than LMC’s failure to perform under the contract as promised. Acme makes a payment on January 15, 2018, in the amount of $750K pursuant to the agreement. From the date of the quote, it takes LMC six months to develop and produce the TV commercial, two weeks to complete the Facebook page, and three months to complete a fully functioning app. LMC believes there is 40% chance that the app will be downloaded 500K times in the first month. Required: Explain how LMC will determine the appropriate amounts of revenue to recognize under this contract. Your explanation should include all steps LMC must complete in the revenue recognition process and should identify the amounts and timing of LMC’s recognition of revenue. Cite appropriate authoritative support for your answer.

B offered to sell a boat to C for $35,000. C’s response stated“I accept your offer but I will also need the boat moved to my boatslip at the same marina.” Is there a contract? If so what are theterms? Explain.

4. Perfect Poultry Company offers to sell a specified number ofchickens and turkeys to Quick Markets. Without including anyadditional terms in the proposal it is a valid offer to form acontract? Explain.

5. Dave’s uncle tells Dave that if “he feels thatDave deserves it,” he will give Dave $10,000 when Dave graduatesfrom college. Dave agrees to the deal. Is the uncle’s promiseenforceable if Dave graduates? Explain.

6. Jennifer was about to be struck by a speeding car. Eva pushedher out of the car’s path, just in time to save her from beingstruck. However, Eva was herself struck by the car and wasseriously injured. Several weeks later, Jennifer promised Eva thatshe would pay her $1,000 per month for life. Is Jennifer’s promiseenforceable? Explain.

7. Vincent entered into a contract to sell his laptop to Millie,age 17. Millie took possession of the computer and continued to useit for five months after reaching her 18^th birthday. Howsignificant is her continued use of the computer?

8. Baker, a real estate broker, only licensed in Oregon,concluded a land sale in California. If the California clientrefuses to pay Baker the commission on the sale may he successfullysue the client for breach of contract? Explain.

9. DG Corp. has recently created a genetically modified cow,which they named Elsie. The MJ Dairy Co. contacts DG about buyingElsie. On November 1st, DG and MJ sign a contract stating that DGwill sell Elsie to MJ for $50,000. What neither party knows is thatElsie died during the preceding night. Explain the significance ofthat event.

10. Gene sells a trail bike to Hollis without disclosing thatthe odome­ter, which reads 10,000 miles, was disconnected 90,000miles ago. Does Hollis have to pay the contract price? Discuss.

11. Mona is induced by her guardian Newt to sign acontract to invest her student loan funds in Overseas Bank throughNewt’s investment firm. Unknown to Mona, Newt realizes ongoingcommissions from the investment. On what basis could Mona rescindthe contract? Discuss.

12. Carl leases 2 acres of land to his friend, Larry. Larryintends to build a house on the property which will significantlyincrease its value. Larry applies for a $1 million loan from FleetBank to build the house. Carl orally promises the bank that he willbe responsible for paying back the loan if Larry does not. On thatbasis the loan is approved.

Is Carl’s promise enforceable if Larry fails to pay back theloan? Explain.

13. Guardian Security, Inc., and Hedge Fund Corporation enterinto an oral contract under which Guardian Security agrees toprovide security services for Hedge Fund offices for as long asHedge Fund needs them. This contract is/is not enforce¬able?

14. The Caplans contract with Fain Construction tobuild a house on their lot for $300.000. The written contractspecifies that Fain is to satisfactorily install Crane brandbathroom fixtures. Fain completes construction but the Caplansrefuse to pay the full contract price because they are notsatisfied with the bathroom fixtures installations. Discuss whetherFain is or is not entitled to the full contract price.

15. Polly agrees to buy Quinn’s Cycle World but only ifRidgeline Credit Union approves the financing. This approval isa:

a. Condition precedent.

b. Condition subsequent.

c. An illusory promise.

16. Ed’s Electric substantially performs its contract withForest Hills Apartments, Inc., to deliver and install an alarmsystem and parking lot lighting. Ed’s is entitled to

a. Nothing due to the breach of contract.

b. Payment to the extent that it performed the contract.

c. Full payment of the contract price since it did substantiallyperform.

17. Gliding Light, LLC, and Hang Gliders, Inc., are parties to acontract. They subse­quently agree that High Riders Inc. shouldtake Gliding Light’s place and assume all of its rights and dutiesunder the contract. This is:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

d. A settlement agreement.

18. Omar and Penn want to discharge their contract by executinga new agreement with performance by Penn to be different from whatwas originally promised. This can best be accomplished by:

a. A mutual agreement to rescind.

b. An accord and satisfaction.

c. A novation.

19. Nina contracts with Office Suites Corporation to buy a suitein its Prospect Point Tower at a premium because of its undisturbedview of Quay Harbor. Unforeseeably, the town of Quay Harbor changesthe zoning law, and Resort Hotels, Inc., constructs Seaview Resort,blocking what would have been Nina’s view. Nina’s best argument fora change in the Office Suites contract or its price is:

a. Frustration of purpose.

b. Objective impossibility of performance.

c. Anticipatory repudiation.

d. Commercial impracticability.