Question

Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time. Assume Sanjeev estimates variable consideration as the expected value. What is the amount of revenue Sanjeev would recognize for the first month of the contract? Multiple Choice $1,000 $1,333 $1,400 $1,200

Answer 1

Answer:

$1,400

Explanation:

The computation of the amount of revenue recognized for the first month is shown below:

= Contract paid amount × number of months + additional amount paid × given percentage + additional amount paid × given percentage

= $1,000 × 6 months + $2,000 × 60% + $3,000 × 40%

= $6,000 + $1,200 + $1,200

= $8,400

Now for one month it is

= $8,400 ÷ 6 months

= $1,400

Answer 2

The amount of revenue Sanjeev would recognize for the first month of the contract  is $1,400.

• The calculation of the amount of revenue recognized is as follows:

But before that following computation need to be done:

= Contract paid amount × number of months + extra amount paid × given percentage + extra amount paid × given percentage

= $1,000 × 6 months + $2,000 × 60% + $3,000 × 40%

= $6,000 + $1,200 + $1,200

= $8,400

Now

For one month it is

= $8,400 ÷ 6 months

= $1,400

Therefore we can conclude that the amount of revenue Sanjeev would recognize for the first month of the contract  is $1,400.

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