FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Transcribed Image Text: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.
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