Clark Corp. enters into a contract with a customer to build an apartment building for $1,000,800. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $135,600 to be paid if the building is ready for rental beginning August 1, 2026. The bonus is reduced by $45,200 each week that completion is delayed. Clark commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by August 1, 2026 August 8, 2026 August 15, 2026 After August 15, 2026 Transaction price $ Probability Transaction price 70 % $ 20 (a) Determine the transaction price for the contract, assuming Clark is only able to estimate whether the building can be completed by August 1, 2026, or not (Clark estimates that there is a 70% chance that the building will be completed by August 1, 2026). 5 5 (b) Determine the transaction price for the contract, assuming Clark has limited information with which to develop a reliable estimate of completion by the August 1, 2026, deadline.

Clark Corp. enters into a contract with a customer to build an apartment building for $1,000,800. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $135,600 to be paid if the building is ready for rental beginning August 1, 2026. The bonus is reduced by $45,200 each week that completion is delayed. Clark commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by August 1, 2026 August 8, 2026 August 15, 2026 After August 15, 2026 Transaction price $ Probability Transaction price 70 % $ 20 (a) Determine the transaction price for the contract, assuming Clark is only able to estimate whether the building can be completed by August 1, 2026, or not (Clark estimates that there is a 70% chance that the building will be completed by August 1, 2026). 5 5 (b) Determine the transaction price for the contract, assuming Clark has limited information with which to develop a reliable estimate of completion by the August 1, 2026, 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?
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.
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Bramble Corp. enters into a contract with a customer to build an apartment building for $930,000. The customer hopes to rent apartments at the beginning of the school year and offers a performance bonus of $143,000 to be paid if the building is ready for rental beginning August 1, 2020. The bonus is reduced by $47,667 each week that completion is delayed. Bramble 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 Bramble is only able to estimate whether the building can be completed by August 1, 2020, or not. (Bramble estimates that there is a 70% chance that the building will be completed by August 1, 2020.) Transaction price $…