Indigo Corp. enters into a contract with a customer to build an apartment building for $1,061,800. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $139,200 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $46,400 each week that completion is delayed. Indigo commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by August 1, 2021 August 8, 2021 August 15, 2021 After August 15, 2021 Transaction Price $ Probability Transaction Price 70 % (a) Determine the transaction price for the contract, assuming Indigo is only able to estimate whether the building can be completed by August 1, 2021, or not (Indigo estimates that there is a 70% chance that the building will be completed by August 1, 2021). (If answer is O, please enter O. Do not leave any fields blank.) $ 20 6 (b) Determine the transaction price for the contract, assuming Indigo has limited information with which to develop a reliable estimate of completion by the August 1, 2021, deadline.

Indigo Corp. enters into a contract with a customer to build an apartment building for $1,061,800. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $139,200 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $46,400 each week that completion is delayed. Indigo commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by August 1, 2021 August 8, 2021 August 15, 2021 After August 15, 2021 Transaction Price $ Probability Transaction Price 70 % (a) Determine the transaction price for the contract, assuming Indigo is only able to estimate whether the building can be completed by August 1, 2021, or not (Indigo estimates that there is a 70% chance that the building will be completed by August 1, 2021). (If answer is O, please enter O. Do not leave any fields blank.) $ 20 6 (b) Determine the transaction price for the contract, assuming Indigo has limited information with which to develop a reliable estimate of completion by the August 1, 2021, deadline.

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 13E: On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million....

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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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