Question

Sandhill’s Agency sells an insurance policy offered by Capital Insurance Company for a commission of $104 on January 2, 2020. In addition, Sandhill will receive an additional commission of $11 each year for as long as the policyholder does not cancel the policy. After selling the policy, Sandhill does not have any remaining performance obligations. Based on Sandhill’s significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years, which results in an expected policy life of 5.5 years. It has no evidence to suggest that previous policyholder behavior will change.

Determine the transaction price of the arrangement for Sandhill, assuming 80 policies are sold. (Round answer to 0 decimal places, e.g. 5,125.)

Transaction price

$

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Determine the revenue that Sandhill will recognize in 2020. (Round answer to 0 decimal places, e.g. 5,125.)

Revenue

$

show work and explain

Answer 1

Solution:

Transaction price = $12,280

Revenue that Sandhill will recognize in 2020 = $2,233

Working: