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 amount in the table to the nearest dollar. Consideration Bonus Amount Probability of Outcome Revenue Recognized Bonus if completed on agreed-upon date Answer Answer Answer Bonus if completed one week late Answer Answer Answer Bonus if completed two weeks late Answer Answer Answer Variable consideration Answer Fixed consideration Answer Total transaction price Answer
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 amount in the table to the nearest dollar.
| Consideration | Bonus Amount | Probability of Outcome | Revenue Recognized |
|---|---|---|---|
| Bonus if completed on agreed-upon date | Answer | Answer | Answer |
| Bonus if completed one week late | Answer | Answer | Answer |
| Bonus if completed two weeks late | Answer | Answer | Answer |
| Variable consideration | Answer | ||
| Fixed consideration | Answer | ||
| Total transaction price | Answer |
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