Zentric Garage Inc. enters into a contract to provide services totaling $78,000.
ID: 2438813 • Letter: Z
Question
Zentric Garage Inc. enters into a contract to provide services totaling $78,000. The contract includes a potential performance bonus based on when Zentric Garage completes the services. Zentric Garage estimates the following scenarios for completion. EB (Click the icon to view the scenarios.) qu Determine the bonus using the most-likely-amount approach. Determine the bonus using the most-likely-amount approach under scenario 1. The bonus for this contract using the most-likely-amount approach under scenario 1 is $ Determine the bonus using the most-likely-amount approach under scenario 2 The bonus for this contract using the most-likely-amount approach under scenario 2 is s Determine the bonus using the most-likely-amount approach under scenario 3. The bonus for this contract using the most-likely-amount approach under scenario 3 is $ ec Scenarios Probability Bonus Scenario 1 Scenario 2 Scenario 3 Complete within 3 days 5 days 8 days $ 13,000 80% $ 8,000 15% 3,500 5% 47% 38% 15% 0% 85% 15% Print Done 4Explanation / Answer
Mostly likely amount approach recognizes a single amount out of a range of variable consideration ... ( i.e 13000, 8000 and 3500) based on having a probability in excess of 50% in a given scenario.
Scenario - 1 : Here there is 80% of getting 13000 as bonus revenue.
Bonus for this contract using most likely amount approach under scenario - 1 = $ 13000
Scenario - 2 : Here highest probability = 47% which is less than 50%. Hence revenue cannot be recognized. That means bonus = 0
Bonus for this contract using most likely amount approach under scenario - 2 = $ 0
Scenario - 3 : Here 85% chance of earning 8000.
Bonus for this contract using most likely amount approach under scenario - 3 = $ 8000
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