Question

Brunetti Co. designed and installed customized signs for Di Antonio CPA, Inc. Brunetti's contract specifies that it will receive a flat fee of $150,000 for providing the customized signs, and an additional $10,000 if 30% of Di Antonio's new customers indicate they first learned of Di Antonio because of the signs. Based on historical experience, Brunetti estimates that there is a 90% chance it will achieve the threshold to receive a bonus.

Required:

(a) Assuming Brunetti uses the most likely value to estimate the variable consideration, calculate the transaction price.

(b) Assuming Brunetti determines transaction price as the "expected value" of the variable consideration, calculate the transaction price.

(c ) Assume Brunetti uses the “expected value” approach, but is very uncertain of that estimate due to a lack of experience with similar arrangements. What would be the appropriate transaction price?

Answer 1

(a) Assuming Brunetti uses the most likely value to estimate the variable consideration, calculate the transaction price.

answer = Based on the most likely amount the tranjection price is $ 150000+$ 10000 = $ 160000 because there is a greater chance of receivng the bonus than not receiving it .

(b) Assuming Brunetti determines transaction price as the "expected value" of the variable consideration, calculate the transaction price.

answer = possible amount probability expected amount =($150000+$10000)= $160000*90% = $ 144000

$ 150000*10% = 15000

Expected contract price = $ 159000

c)Assume Brunetti uses the “expected value” approach, but is very uncertain of that estimate due to a lack of experience with similar arrangements. What would be the appropriate transaction price

Answer = expected amount =($150000+$10000)= $160000*90% = $ 144000