Nair Corp. enters into a contract with a customer to build an apartment building for $1,000,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $150,000 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $50,000 each week that completion is delayed. Nair commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 1, 2018 70% August 8, 2018 20 August 15, 2018 5 After August 15, 2018 5 Determine the transaction price for this contract.
Nair Corp. enters into a contract with a customer to build an apartment building for $1,000,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $150,000 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $50,000 each week that completion is delayed. Nair commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 1, 2018 70% August 8, 2018 20 August 15, 2018 5 After August 15, 2018 5 Determine the transaction price for this contract.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Nair Corp. enters into a contract with a customer to build an apartment building for $1,000,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $150,000 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $50,000 each week that completion is delayed. Nair commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
| Completed by | Probability |
| August 1, 2018 | 70% |
| August 8, 2018 | 20 |
| August 15, 2018 | 5 |
| After August 15, 2018 | 5 |
Determine the transaction price for this contract.
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