A company has a contract to deliver 100 units at 1,000 total). After delivering 40 units, the customer requests 20 additional units at $9 each. The $9 price does not reflect the standalone selling price of $10. The remaining goods are not distinct from those already delivered. How should this modification be accounted for?
- As a separate contract, recognizing revenue on the additional 20 units at $9 each.
- As a termination of the original contract and creation of a new contract, with revenue recognized on a cumulative catch-up basis. (correct answer)
- As a modification to the existing contract, with the additional units priced prospectively at $9 each.
- Ignored until the full modified contract is completed.
Explanation: When remaining goods are not distinct from those already transferred, the modification is treated as if the original contract were terminated and a new contract created. Revenue is adjusted on a cumulative catch-up basis reflecting the new blended price over all remaining units. Answer B is correct. Answer A requires the modification to meet separate contract criteria (distinct goods at standalone price), which is not met here. Answer C describes prospective treatment, which applies when remaining goods are distinct but do not meet the separate contract criteria. Answer D has no basis in ASC 606.