Thomas Consultants provided Bran Construction with assistanc

Thomas Consultants provided Bran Construction with assistance in implementing various cost-savings initiatives. Thomas’s contract specifies that it will receive a flat fee of $59,000 and an additional $29,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 20% chance that Bran will achieve the cost-savings target. Required: 1. Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price. 2. Assuming Thomas uses the most likely value as its estimate of variable consideration, calculate the transaction price. 3. Assume Thomas uses the expected value as its estimate of variable consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price. Req 1Req 2 and 3 Assuming Thomas uses the expected value as its estimate of variable consideration, calculate the transaction price. Possible Amounts Probabilities Expected Amounts × % = × % = Expected contract price at inception $0 2. Assuming Thomas uses the most likely value as its estimate of variable consideration, calculate the transaction price. 3. Assume Thomas uses the expected value as its estimate of variable consideration, but is very uncertain of that estimate due to a lack of experience with similar consulting arrangements. Calculate the transaction price. 2. Transaction price 3. Transaction price

Solution

req 1 Assuming Thomas uses the expected value as as its estimate of variable consideration Possible amounts Probabilities 88000 * 20% = 17600 59000+29000 = 88000 59000 * 80% = 47200 expected contract price at inception (sum) 64800 req2 assuming thomas uses the most likely value as its estimate of variable consideration transaction price = 59000 the flat fee is the most likely value req 3 transaction price = 59000 It would again be the flat fee and no bonus added as it has very little probability (20 %) of getting that bonus