Homework Help Save &E; Exercise 5-9 Variable consideration; estimation and const

Question

Homework Help Save &E; Exercise 5-9 Variable consideration; estimation and constraint [LOS-6) Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas's contract specifies that it will receive a flat fee of $51,000 and an additional $21,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 25% chance that Bran will achieve the cost-savings target Required: 1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price 2. Assuming Thomas uses the most likely value as its estimate of variable consideration, calculate the transaction price 3. Assume Thomas uses the expected value as its estimate of variable consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price Complete this question by entering your answers in the tabs below Req 1 Req 2 and 3 Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price Prev 4 of 14 Next 8 3 0 0

Explanation / Answer

1.

2. Transaction price = $51000

Since under the most likely value method of estimation, the entity records only a single most likely outcome from a contract when there are more than one outcomes possible.

3. Transaction price = $51000

Since under the expected value approach the possibility of an uncertain amount being recorded as income only arises, when the entity has a large number of contracts with similar characterstics. In this case, Thomas does not have sufficient number of contracts with similar characterstics as the given contract in question.

Possible Amounts x Probabilities = Expected Amounts $51000 x 100% = $51000 $21000 x 25% = $5250 Expected contract price at inception $56250

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