Binco Brass Corp. (BBC) is a wholesaler that sells musical instruments to retailers. On February 1 of the current year, BBC contracts with Music Extravaganza, Inc. (MEI) to sell 1,000 trumpets to MEI with delivery scheduled for the month of February. The contract price is $500 per trumpet. However, the contract includes the possibility of a volume discount if total annual purchases exceed a given amount. These discounts are as follows:If Total Sales Equal or ExceedDiscount Percentage $1,000,0001% $2,000,0002% $5,000,0005% These discounts are retroactive—once a volume trigger is met, BBC refunds to MEI amounts on previous purchases. BBC believes that it is 15% likely that it will not contract with MEI again this year. BBC believes the following probability estimates are accurate:Total SalesProbability$500,00015%$1,000,00060%$2,000,00020%$5,000,0005%Using the expected-value approach, what is the estimate of the consideration amount in this contract?

Revenue should be recognised as and when performance obligations satisfies. There may be some…

Answered: Binco Brass Corp. (BBC) is a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

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Problem 1Q

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Binco Brass Corp. (BBC) is a wholesaler that sells musical instruments to retailers. On February 1 of the current year, BBC contracts with Music Extravaganza, Inc. (MEI) to sell 1,000 trumpets to MEI with delivery scheduled for the month of February. The contract price is $500 per trumpet. However, the contract includes the possibility of a volume discount if total annual purchases exceed a given amount. These discounts are as follows:

If Total Sales Equal or Exceed

Discount Percentage

$1,000,000

$2,000,000

$5,000,000

These discounts are retroactive—once a volume trigger is met, BBC refunds to MEI amounts on previous purchases. BBC believes that it is 15% likely that it will not contract with MEI again this year. BBC believes the following probability estimates are accurate:

Total Sales	Probability
$500,000	15%
$1,000,000	60%
$2,000,000	20%
$5,000,000	5%

Using the expected-value approach, what is the estimate of the consideration amount in this contract?

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