Waterway’s Agency sells an insurance policy offered by Capital Insurance Company for a commission of $92 on January 2, 2020. In addition, Waterway will receive an additional commission of $11 each year for as long as the policyholder does not cancel the policy. After selling the policy, Waterway does not have any remaining performance obligations. Based on Waterway’s significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years, which results in an expected policy life of 5.5 years. It has no evidence to suggest that previous policyholder behavior will change.

Determine the transaction price of the arrangement for Waterway, assuming 70 policies are sold.

Answer rating: 100% (QA)

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