Question

Exercise 6-9 (Algo) Variable consideration; estimation and constraint (LO6-6) 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 $66,000 and an additional $36,000 if Bran reaches a prespecified target amount of cost savings. Thomas estimates that there is a 25% 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. Complete this question by entering your answers in the tabs below. nces Reg 1 Reg 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 Reg 2 and 3 >

Answer 1

Transaction Price price is that minimum amount that is fixed amour receivable for the particular transaction. It is the fixed or flat price for particular transaction. The additional fees is charged for the extra-ordinary services provided.

1 The expected contract price at inception d is calculated beld wir possible amounts o Probabilities Expected Amount- 102,000 X 25% z 25500 66000 X 75% = 49,500 oro sol Expected contract price at inception 75,000 I possible amount - Total fixed feest additional fees - = $ 66,000 + $36000 2 $ 102,000 possible amount - Total fixed feest additional E n fees = $ 66,000+ $0 2) Thomas uses the most likely value is the total flat fee $ 6GOCO excluding the additional fees because. There for transaction price is $ 66,000. There less possibleility of additional fees will get. But Fixed price (flat price) will alway be expected. so transaction price is $ 66000 3 Thomas uses the expected value as its estimate of variable. But 1st Thomas is very uncertain of that estimate ducto lack of esperience so his be may not be expected additional fees but he wil get his fixed as flat fees. l. e. $660oo. Sa so the transaction price is $ 66,000 (201