Question

Grouper’s Agency sells an insurance policy offered by Capital Insurance Company for a commission of $92 on January 2, 2017. Grouper will receive an additional commission of $10 each year for as long as the policyholder does not cancel the policy. After selling the policy, Grouper does not have any remaining performance obligations. Based on Grouper’s significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years after the first year before terminating their insurance policy. It has no evidence to suggest that previous policyholder behavior will change.

Record the transaction price of the arrangement if there are 90 policies sold.

Answer: $12,330

Determine the revenue that grouper will recognize in 2017.

Answer: Unknown, tried 8280, 2740, 9180

Answer 1

Compute the transaction price as follows: Transaction price = Comission on sale of policies + Additional comission = ($92x90) + (510x90x4.5years) = $8,280+ $4,050 = $12,330 Compute the revenue recognized in 2017 as follows: Transaction price Revenue recognized= Average period for the policy $12.330 4.5years + 1year $12,330 5.5 years = $2,242