Pearl Corp. enters into a contract with a customer to build an apartment building for $926,900. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $155,100 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $51,700 each week that completion is delayed. Pearl 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 (a) Determine the transaction price for the contract, assuming Pearl is only able to estimate whether the building can be completed by August 1, 2018, or not (Pearl estimates that there is a 70% chance that the building will be completed by August 1, 2018). (If answer is 0, please enter 0. Do not leave any fields blank.) Transaction Price $ (b) Determine the transaction price for the contract, assuming Pearl has limited information with which to develop a reliable estimate of completion by the August 1, 2018, deadline. (If answer is 0, please enter 0. Do not leave any fields blank.) Transaction Price $

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Brief Exercise 18-7

Pearl Corp. enters into a contract with a customer to build an apartment building for $926,900. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $155,100 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $51,700 each week that completion is delayed. Pearl 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

(a) Determine the transaction price for the contract, assuming Pearl is only able to estimate whether the building can be completed by August 1, 2018, or not (Pearl estimates that there is a 70% chance that the building will be completed by August 1, 2018). (If answer is 0, please enter 0. Do not leave any fields blank.)

Transaction Price

(b) Determine the transaction price for the contract, assuming Pearl has limited information with which to develop a reliable estimate of completion by the August 1, 2018, deadline. (If answer is 0, please enter 0. Do not leave any fields blank.)

Transaction Price

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions