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 that Emmet accrues revenue each month, and estimates variable consideration as the most likely amount. On November 1, Emmet revises its estimate of the chance the building will exceed the 90% occupancy threshold to a 70% chance. What is the total amount of revenue Emmet should recognize on this contract in November of 2018?
A) $3,125
B) $4,167
C) $4,792
D) $7,291

Question

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 that Emmet accrues revenue each month, and estimates variable consideration as the most likely amount. On November 1, Emmet revises its estimate of the chance the building will exceed the 90% occupancy threshold to a 70% chance. What is the total amount of revenue Emmet should recognize on this contract in November of 2018?
A) $3,125
B) $4,167
C) $4,792
D) $7,291

Quizplus · Accepted Answer

In July, August, September, and October, Emmet would have based revenue recognition on the most likely amount of $50,000, and so would have recognized revenue of $50,000 × 4/12 = $16,667. Starting in November, Emmet believes the most likely amount is $50,000 + ($50,000 × 15%) = $57,500, such that by the end of November Emmet should have recognized revenue totaling $57,500 × 5/12 = $23,958. Therefore, the amount of revenue Emmet should recognize in November to revise its estimate is $7,291, calculated as $23,958 - $16,667.

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