2. AG Construction enters into a contract with a customer to build a new headquarters facility for $1,000,000 on January 1, 2023 with a performance bonus of $100,000 if the building is completed by July 31, 2023. The bonus is reduced by $20,000 each week that completion is delayed. AG commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2023 65% August 7, 2023 25% August 14, 2023 5% August 21, 2023 5% a. Calculate the contract price for AG using the probability-weighted (expected value) method. b. Assume that AG can only determine the probabilities of completing the project by July 31 (65%) or not meeting the deadline (35%). Calculate the contract price under this scenario.

2. AG Construction enters into a contract with a customer to build a new headquarters facility for $1,000,000 on January 1, 2023 with a performance bonus of $100,000 if the building is completed by July 31, 2023. The bonus is reduced by $20,000 each week that completion is delayed. AG commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2023 65% August 7, 2023 25% August 14, 2023 5% August 21, 2023 5% a. Calculate the contract price for AG using the probability-weighted (expected value) method. b. Assume that AG can only determine the probabilities of completing the project by July 31 (65%) or not meeting the deadline (35%). Calculate the contract price under this scenario.

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

Chapter8: Revenue Recognition, Receivables, And Advances From Customers

Section: Chapter Questions

Problem 48P

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