Aarons Agency sells an insurance policy offered by Capital Insurance Company for a commission of ($100). In
Question:
Aaron’s Agency sells an insurance policy offered by Capital Insurance Company for a commission of \($100\). In addition, Aaron will receive an additional commission of \($10\) each year for as long as the policyholder does not cancel the policy. After selling the policy, Aaron does not have any remaining performance obligations. Based on Aaron’s significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years. It has no evidence to suggest that previous policyholder behavior will change.
Instructions
(a) Determine the transaction price of the arrangement for Aaron, assuming 100 policies are sold.
(b) Prepare the journal entries, assuming that the 100 policies are sold in January 2015 and that Aaron receives commissions from Capital.
Step by Step Answer:
Intermediate Accounting IFRS Edition
ISBN: 9781118443965
2nd Edition
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield