Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Transcribed Image Text:Robinson Corp. enters into a contract with a customer to build an apartment building for $990,500. The customer hopes to rent
apartments at the beginning of the school year and provides a performance bonus of $147,300 to be paid if the building is ready for
rental beginning August 1, 2026. The bonus is reduced by $49,100 each week that completion is delayed. Robinson 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 Robinson is only able to estimate whether the building can be
completed by August 1, 2026, or not (Robinson 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 Robinson has limited information with which to develop a reliable
estimate of completion by the August 1, 2026, deadline.
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