Allee Corp. is evaluating a revenue arrangement todetermine proper revenue recognition. The contract is forconstruction of 10 speedboats for a contract price of$400,000. The customer needs the boats in its showroomsby February 1, 2018, for the boat purchase season; thecustomer provides a bonus payment of $21,000 if allboats are delivered by the February 1 deadline. The bonusis reduced by $7,000 each week that the boats are deliveredafter the deadline until no bonus is paid if the boatsare delivered after February 15, 2018. Allee frequentlyincludes such bonus terms in it contracts and thus hasgood historical data for estimating the probabilities ofcompletion at different dates. It estimates an equal probability(25%) for each full delivery outcome. Assume thatAllee has limited experience with a construction projecton the same scale as the 10 speedboats. How does thisaffect the accounting for the variable consideration?
Allee Corp. is evaluating a revenue arrangement to
determine proper revenue recognition. The contract is for
construction of 10 speedboats for a contract price of
$400,000. The customer needs the boats in its showrooms
by February 1, 2018, for the boat purchase season; the
customer provides a bonus payment of $21,000 if all
boats are delivered by the February 1 deadline. The bonus
is reduced by $7,000 each week that the boats are delivered
after the deadline until no bonus is paid if the boats
are delivered after February 15, 2018. Allee frequently
includes such bonus terms in it contracts and thus has
good historical data for estimating the probabilities of
completion at different dates. It estimates an equal probability
(25%) for each full delivery outcome. Assume that
Allee has limited experience with a construction project
on the same scale as the 10 speedboats. How does this
affect the accounting for the variable consideration?
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
