A company enters into a contract with a customer to build a structure for $565,000 (base pay). The customer provides a performance bonus of $66,000 to be paid if the structure is ready before July 1, 2021. The bonus is reduced each week that completion is delayed (see below). The company commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
A company enters into a contract with a customer to build a structure for $565,000 (base pay). The customer provides a performance bonus of $66,000 to be paid if the structure is ready before July 1, 2021. The bonus is reduced each week that completion is delayed (see below). The company commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
|
Completed by |
Bonus to be Received |
Probability |
|
July 1, 2021 |
100% of the total bonus |
50% |
|
July 8, 2021 |
75% of the total bonus |
20 |
|
July 15, 2021 |
50% of the total bonus |
15 |
|
July 22, 2021 |
25% of the total bonus |
10 |
|
July 29, 2021 |
0 |
5 |
What is the transaction price for this contract? (Remember to add the base pay.)
Step by step
Solved in 2 steps with 1 images
