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A/S ZEE Inflatables ZEE Inflatables A/S. (ZEE Inflatables or the "Company") manufactures and leases inflatable bounce houses to...

could you please help with memo in the accounting ?Screen Shot 2018-12-02 at 21.24.26.png

Screen Shot 2018-12-02 at 21.24.26.png

A/S ZEE Inflatables
ZEE Inflatables A/S. (ZEE Inflatables or the "Company") manufactures and leases
inflatable bounce houses to party-planning businesses as well as various third-party
The Company entered into a contract with SIA Function Junction to be the sole provider
of bounce houses for all its events for a period of three years. The Function Junction
holds weekly events, with ZEE Inflatables providing its inflatable bounce houses for
every event. After the initial three-year period, the contract is renewable in one-year
The average customer relationship period typically lasts for five years (the initial three-
year term plus two one-year renewals). The Company has concluded that the contract
does not contain a lease within the scope of ASC 840 [ASC 842], and therefore accounts
for the arrangement as a contract with a customer within the scope of ASC 606.
As an incentive to execute new customer contracts, the Company offers its sales
representative a one-time $5,000 commission, which is earned and payable to the sales
representative as soon as the contract is executed with the customer. No additional
commission is paid to the sales representative upon renewal of the contract by the
The sales representative incurred $500 in travel costs to travel to SIA Function Junction's
headquarters to perform a demonstration.
ZEE Inflatables A/S incurred approximately $2,000 in external legal costs to draft the
contract executed between the Company and SIA Function Junction.
Prepare in proper accounting memo format, using the previous examples and templates
provided, a case analysis answering the following questions:
1. Does ASC 606, Revenue From Contracts With Customers, address the treatment
of incremental costs of obtaining a contract? Explain
Which costs are incremental costs of obtaining the contract, and therefore are
required to be capitalized? Be specific and support your answers with references
to the standards and other examples.
3. How should EZ Inflatables determine the appropriate amortization method, and
over what period should the Company amortize any capitalized costs? Provide
example journal entries. How means explain the process of accounting for
determining the amortization method applicable to the case, in your own words,
not just providing unsupported entries or cutting and pasting from the ASC.

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