Assume that Sanjeev estimates variable consideration as the most likely amount.After Sanjeev has recognized revenue for two months of the contract,he changes his assessment of the chance the contract will pay him $3,000 to 70%.What adjustment to revenue should Sanjeev recognize to account for that change in estimate?

Question

Quizplus · Accepted Answer

If Sanjeev estimates variable consideration as the most likely amount and recognizes revenue for two months of the contract, he would recognize revenue for $16,000 (8 months x $2,000 per month). 
After changing his assessment of the chance the contract will pay him $3,000 to 70%, Sanjeev should adjust his revenue by the difference between the original estimate and the new estimate multiplied by the percentage change. 
The difference is $1,000 ($3,000 - $2,000), and the percentage change is 30% (100% - 70%). 
Therefore, the adjustment to revenue should be a credit of $334 ($1,000 x 30% x 2/8 since revenue for two months has already been recognized). 
Therefore, the answer is D, credit of $334.

Assume That Sanjeev Estimates Variable Consideration as the Most Likely