Determining the Transaction Price for a Revenue Contract A contractor enters into a revenue contract with a customer to build customized equipment for $180,000 with a performance bonus of $99,000 that will be paid based on how quickly the equipment is completed. The amount of the performance bonus decreases by 15% of the original bonus per week for every week beyond the agreed upon completion date. The contractor has had experiences with similar contracts and thus has the data to predict the timing of completion of the contract. Therefore, the contractor concludes that the expected value method is the best predictor of revenue. The contractor estimates that there is a 60% probability that the contract will be completed by the agreed-upon completion date, a 35% probability that it will be completed one week late, and a 5% probability that it will be completed two weeks late. Complete the following table in order to determine the transaction price for revenue recognition for the contractor. Round each dollar amount to the nearest whole dollar. Consideration Bonus if completed on agreed upon date Bonus if completed one week late Bonus if completed two weeks late Variable consideration Fixed consideration Total transaction price Check Bonus Probability of Outcome Amount ON F ON ON 0 0 0 1 1 0 0 0 0
Determining the Transaction Price for a Revenue Contract A contractor enters into a revenue contract with a customer to build customized equipment for $180,000 with a performance bonus of $99,000 that will be paid based on how quickly the equipment is completed. The amount of the performance bonus decreases by 15% of the original bonus per week for every week beyond the agreed upon completion date. The contractor has had experiences with similar contracts and thus has the data to predict the timing of completion of the contract. Therefore, the contractor concludes that the expected value method is the best predictor of revenue. The contractor estimates that there is a 60% probability that the contract will be completed by the agreed-upon completion date, a 35% probability that it will be completed one week late, and a 5% probability that it will be completed two weeks late. Complete the following table in order to determine the transaction price for revenue recognition for the contractor. Round each dollar amount to the nearest whole dollar. Consideration Bonus if completed on agreed upon date Bonus if completed one week late Bonus if completed two weeks late Variable consideration Fixed consideration Total transaction price Check Bonus Probability of Outcome Amount ON F ON ON 0 0 0 1 1 0 0 0 0
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Determining the Transaction Price for a Revenue Contract
A contractor enters into a revenue contract with a customer to build customized equipment for $180,000 with a performance bonus of $99,000 that will be paid based on how quickly the equipment
is completed. The amount of the performance bonus decreases by 15% of the original bonus per week for every week beyond the agreed upon completion date. The contractor has had experiences
with similar contracts and thus has the data to predict the timing of completion of the contract. Therefore, the contractor concludes that the expected value method is the best predictor of revenue.
The contractor estimates that there is a 60% probability that the contract will be completed by the agreed-upon completion date, a 35% probability that it will be completed one week late, and a 5%
probability that it will be completed two weeks late.
Complete the following table in order to determine the transaction price for revenue recognition for the contractor.
Round each dollar amount to the nearest whole dollar.
Consideration
Bonus if completed on agreed upon date
Bonus if completed one week late
Bonus if completed two weeks late
Variable consideration
Fixed consideration
Total transaction price
Check
Bonus Probability of Outcome Amount
ON F
ON
ON
0
0
0
1
1
0
0
0
0
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