Im not sure what this problem is asking for, Inalready figured out step one. 70,000 x 20%= 14,000 and 50,000 x 80%= 40,000 which makes the contract price at inception 54,000. After that what do I do? "Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas’s contract specifies that it will receive a flat fee of $50,000 and an additional $20,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve the cost-savings target. Required:Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price.Assuming Thomas uses the most likely value as its estimate of variable consideration, calculate the transaction price.Assume Thomas uses the expected value as its estimate of variable consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price."

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Asked Oct 4, 2019
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Im not sure what this problem is asking for, Inalready figured out step one. 70,000 x 20%= 14,000 and 50,000 x 80%= 40,000 which makes the contract price at inception 54,000. After that what do I do?

 

"Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas’s contract specifies that it will receive a flat fee of $50,000 and an additional $20,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve the cost-savings target.

 

Required:

  1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price.
  2. Assuming Thomas uses the most likely value as its estimate of variable consideration, calculate the transaction price.
  3. Assume Thomas uses the expected value as its estimate of variable consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price."

 

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Expert Answer

Step 1

The probability of expected cost saving is 20% of $20,000, so, the transaction pri...

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