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 aprespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve thecost-savings target.Required:1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transactionprice.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 thatestimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price.
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 aprespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve thecost-savings target.Required:1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transactionprice.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 thatestimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price.
Financial And Managerial Accounting
15th Edition
ISBN:9781337902663
Author:WARREN, Carl S.
Publisher:WARREN, Carl S.
Chapter26: Capital Investment Analysis
Section: Chapter Questions
Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...
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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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