Moover Construction enters into a contract with a customer to build a warehouse for $900,000 on June 30, 2017, with a performance bonus of $60,000 if the building is completed by October 31, 2017. The bonus is reduced by
$20,000 each week that completion is delayed. The contract also states that if the warehouse receives a favorable safety inspection rating from government inspectors by November 30, Moover will receive a performance bonus of
$40,000.
Moover commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: In addition, Moover estimates there is a 90% chance that the warehouse will receive a favorable safety inspection rating upon timely completion.
Required:
a. Assume Moover uses the expected value approach. Determine the transaction price for this transaction.
b. Assume Moover uses the most likely amount approach. Determine the transaction price for this transaction.

Question

Moover Construction enters into a contract with a customer to build a warehouse for $900,000 on June 30, 2017, with a performance bonus of $60,000 if the building is completed by October 31, 2017. The bonus is reduced by
$20,000 each week that completion is delayed. The contract also states that if the warehouse receives a favorable safety inspection rating from government inspectors by November 30, Moover will receive a performance bonus of
$40,000.
Moover commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:  In addition, Moover estimates there is a 90% chance that the warehouse will receive a favorable safety inspection rating upon timely completion.
Required: 
a. Assume Moover uses the expected value approach. Determine the transaction price for this transaction.
b. Assume Moover uses the most likely amount approach. Determine the transaction price for this transaction.

Quizplus · Accepted Answer

The Answer of Moover Construction enters into a contract with a customer to build a warehouse for $900,000 on June 30, 2017, with a performance bonus of $60,000 if the building is completed by October 31, 2017. The bonus is reduced by
$20,000 each week that completion is delayed. The contract also states that if the warehouse receives a favorable safety inspection rating from government inspectors by November 30, Moover will receive a performance bonus of
$40,000.
Moover commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:  In addition, Moover estimates there is a 90% chance that the warehouse will receive a favorable safety inspection rating upon timely completion.
Required: 
a. Assume Moover uses the expected value approach. Determine the transaction price for this transaction.
b. Assume Moover uses the most likely amount approach. Determine the transaction price for this transaction.

Moover Construction Enters into a Contract with a Customer to Build