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 $130,000 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 $130,000 bonus. Ignore any constraints on variable consideration. Refer to Jones Corporation. Using the most-likely-amount approach, the transaction price would be ________.
A) $130,000
B) $250,000
C) $328,000
D) $380,000

Question

Quizplus · Accepted Answer

The most-likely-amount approach considers the most likely outcome of the variable consideration. Since there is a 60% chance of earning the $130,000 bonus, the most likely outcome is that the bonus will be earned. Therefore, the transaction price is the fixed fee of $250,000 plus the $130,000 bonus, totaling $380,000.

Jones Corporation Enters into a Contract with Warner Video to Add