Jones Corporation enters into a contract with Warner Video to add their programs to Jones' network. Warner will pay Jones an upfront fixed fee of $250,000 for 12 months of access, and will also pay a $100,000 bonus if Jones' users access Warner Video for at least 10,000 hours during the 12 month period. Jones estimates that it has a 60% chance of earning the $100,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the expected-value approach, the transaction price would be ________.
A) $150,000
B) $250,000
C) $310,000
D) $350,000

Question

Quizplus · Accepted Answer

The transaction price using the expected-value approach is calculated by adding the fixed fee to the expected value of the bonus. The expected value of the bonus is $100,000 multiplied by the 60% probability, which equals $60,000. Therefore, the transaction price is $250,000 + $60,000 = $310,000.

Jones Corporation Enters into a Contract with Warner Video to Add