Henderson Farms Inc. sells land to Harris Development Corporation for $2,000,000 It is also entitled to receive 6% of any future sales price of the developed land in excess of $5 million. Henderson Farms Inc. determines that its experience with similar contracts is of little predictive value, because the future performance of the real estate market will cause the amount of variable consideration to be highly susceptible to factors outside of the company's influence. Additionally, the uncertainty is not expected to be resolved in a short period of time because Harris Development Corporation does not have current plans to sell the land.

However, the following additional information becomes known to Henderson Farms Inc. two years after the contract was signed:

Land prices have significantly appreciated in the market.

Henderson Farms Inc. estimates that it is probable that a significant reversal of cumulative revenue recognized will not occur related to $150,000 of variable consideration based on sales of comparable land in the area.

Harris Development Corporation is actively marketing the land for sale.

Required:

Should Henderson Farms Inc. include variable consideration in the transaction price upon signing the contract?

How should Henderson Farms Inc. account for the new information?

Answer rating: 100% (QA)

SOLUTION Upon signing the contract Henderson Farms Inc should not include the variable consideration in the transaction price According to the given information Henderson Farms Inc determines that its ... View the full answer