On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract.
- Assume Emmet estimates variable consideration as the expected value. How much revenue should Emmet recognize on this contract in 2018?
A) $25,000
B) $26,125
C) $28,750
D) $50,000

Question

Quizplus · Accepted Answer

The expected value of the transaction price is $52,250 for one year, computed as $50,000 + (30% × $50,000 × 15%). Since six months have elapsed, Emmet should recognize revenue of $52,250 × 6/12 = $26,125.

On June 1, 2018, Emmet Property Management Entered into a 2-Year