ABC Company enters into a contract with Edmond Library to help them streamline their purchasing process. The contract specifies that Edmond Library will pay ABC $90,000 in the form of a fixed fee plus an additional $10,000 if the library achieves $200,000 in cost savings. ABC estimates a 55% chance that the library will achieve a $200,000 savings. Assume ABC estimates that the transaction price is the expected-value transaction price. The transaction price is recorded as ________. Ignore any constraints on variable consideration.
A) $90,000
B) $95,500
C) $100,000
D) $84,500

Question

Quizplus · Accepted Answer

The expected-value transaction price is calculated by multiplying the probability of achieving the additional $10,000 by the amount and adding it to the fixed fee: $90,000 + ($10,000 * 0.55) = $95,500.

ABC Company Enters into a Contract with Edmond Library to Help