A company enters into a contract to build a factory for a customer. The agreed price is $3,000,000 and the specified completion date is 31 December 2021. However, the contract provides that the company should receive an incentive payment of a further $300,000 if the factory is completed by 30 November 2021. Similarly, the price will be reduced by $300,000 if the factory is not completed until after 31 January 2022. The company estimates that there is a 15% probability that the factory will be completed by 30 November 2021, an 80% probability that it will be completed in December 2021 or January 2022 and a 5% probability that it will not be completed until after 31 January 2022. What is the expected value of the transaction price for this contract? $3,030,000 $3,000,000 $2,985,000 $3,045,000

A company enters into a contract to build a factory for a customer. The agreed price is $3,000,000 and the specified completion date is 31 December 2021. However, the contract provides that the company should receive an incentive payment of a further $300,000 if the factory is completed by 30 November 2021. Similarly, the price will be reduced by $300,000 if the factory is not completed until after 31 January 2022. The company estimates that there is a 15% probability that the factory will be completed by 30 November 2021, an 80% probability that it will be completed in December 2021 or January 2022 and a 5% probability that it will not be completed until after 31 January 2022. What is the expected value of the transaction price for this contract? $3,030,000 $3,000,000 $2,985,000 $3,045,000

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 13E: On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million....

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