Shownow Film Company grants a customer the rights to broadcast three films under a single licensing agreement. The arrangement includes a fixed fee of $ 90,000. At the end of the arrangement, two films are complete but the third has not yet been produced. The arrangement provides for an even reduction in the film license fee if the third film is not completed and made available for delivery. Shownow determines that it is 80% likely that it will deliver the third film on time.
Required
a. What are the performance obligations under the licensing agreement?
b. What is the transaction price? (Consider any variable consideration.)