Company enters into a contract on May 1, Year5. Company concludes that this contract qualifies for revenue recognition over time and prepares monthly financial statements.

• The contract pays $400,000 for 4-months of continuous consulting services. Company receives the $400,000 on May 1.
• In addition, there is a possibility of a bonus, depending on the outcome. Company has assigned the following likelihood to the 3different bonus possibilities:
  • 30% chance the contract will pay an additional $10,000
  • 50%chance the contract will pay an additional $26,000
  • 20% chance the contract will pay an additional $30,000

Assume Company collects the$30,000bonus onAugust31,Year5(end of the4th month of the contract.) Company estimates variable consideration using the "expected value" approach.

A. What is the expected value of Company's contract when it is signed?

B. How much total revenue does Company actually earn related to this contract during the 4 month period from May through August?

 

C. How much revenue is be recorded by Company in each month?

 

Answer rating: 100% (QA)

A To calculate the expected value of the Companys contract when it is signed we need to multiply the ... View the full answer