In January 2024, Continental Fund Services, Incorporated, enters into a one-year contract with a client to provide investment advisoryservices. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1.5% of theclient's $310 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonusof 15% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a$1.5 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market.On what transaction price should Continental base revenue recognition?Note: Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).Transaction pricemillion

The total amount of compensation that a seller expects to get from a client in exchange for…

In January 2024, Continental Fund Services, Incorpo services. The company will receive a management f client's $310 million total assets being managed. In a of 15% of any returns in excess of the return on the

In January 2024, Continental Fund Services, Incorpo services. The company will receive a management f client's $310 million total assets being managed. In a of 15% of any returns in excess of the return on the

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

Problem 19RE

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On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
In January 2021, Continental Fund Services, Inc., enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1% of the client’s $150 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 20% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $2 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition?
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On January 1, 2023, Caramel Company enters into a contract with Keystone Inc. to perform asset management servcies for one year. Caramel Company receives a quarterly management fee of 2% of Keystone's assets under management at the end of each quarter. Caramel Company also receives a performance-based incentive fee of 10% of the fund's return in excess of the return of an observable index at the end of the year. When should Caramel Company recognize the revenue from the management fee and the performance based incentive fee?
On January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $3,000,000, and construction is expected to take 18 months. Drewry is billed and pays $1,500,000 of the contract price on January 2, 2019, and will pay the balance at completion. TI estimates that the cost of construction will be $2,100,000. Drewry includes two performance bonuses in the contact: • U.S. Bonus: If the equipment design receives a U.S. patent by March 15, 2020, Drewry will pay a $300,000 bonus. • International Bonus: If the equipment receives approval for international distribution by January 31, 2020, Drewry will pay a $1,000,000 bonus. The bonuses are payable when a U.S. patent is approved and when international distribution is approved. On the date the contract is signed, TI estimates that there is an 80% chance it will receive U.S. patent protection by March 15, 2020, but only a 30% chance that the equipment will be approved for…
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Blue Spruce Corp. enters into a contract with a customer to build an apartment building for $830,000. The customer hopes to rent apartments at the beginning of the school year and offers a performance bonus of $165,000 to be paid if the building is ready for rental beginning August 1, 2020. The bonus is reduced by $55,000 each week that completion is delayed. Blue Spruce commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 1, 2020 70 % August 8, 2020 20 August 15, 2020 5 After August 15, 2020 5 Determine the transaction price for this contract, assuming Blue Spruce is only able to estimate whether the building can be completed by August 1, 2020, or not. (Blue Spruce estimates that there is a 70% chance that the building will be completed by August 1, 2020.) Transaction price : ……………? Determine the transaction price for…
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Culver Corp. enters into a contract with a customer to build an apartment building for $970,000. The customer hopes to rent apartments at the beginning of the school year and offers a performance bonus of $171,000 to be paid if the building is ready for rental beginning August 1, 2020. The bonus is reduced by $57,000 each week that completion is delayed. Culver commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 1, 2020 70 % August 8, 2020 20 August 15, 2020 5 After August 15, 2020 5 Determine the transaction price for this contract, assuming Culver is only able to estimate whether the building can be completed by August 1, 2020, or not. (Culver estimates that there is a 70% chance that the building will be completed by August 1, 2020.) Transaction price $…