Sandhill Construction enters into a contract with a customer to build a warehouse for $910000 on March 30, 2021 with a performance bonus of $40000 if the building is completed by July 31, 2021. The bonus is reduced by $8000 each week that completion is delayed. Sandhill commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2021 70% August 7, 2021 20% August 14, 2021 5% August 21, 2021 5% The transaction price for this transaction is O $673400 O $946400 O $665400 O $910000

Sandhill Construction enters into a contract with a customer to build a warehouse for $910000 on March 30, 2021 with a performance bonus of $40000 if the building is completed by July 31, 2021. The bonus is reduced by $8000 each week that completion is delayed. Sandhill commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability July 31, 2021 70% August 7, 2021 20% August 14, 2021 5% August 21, 2021 5% The transaction price for this transaction is O $673400 O $946400 O $665400 O $910000

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 26E

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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?
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