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Sanjeev enters into a contract offering uncertain consideration. The contract pays him $1,000/month for six months...

Sanjeev enters into a contract offering uncertain 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 estimates uncertain consideration using the most likely amount. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

A. $0.

B. $1,000.

C. $1,333.

D. $1,400.

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Answer #1

Answer: C. $1,333

Calculation:

Contract Payment = 1,000 for 6 months

Additional chances:

60% chance the contract will pay an additional $2,000

40% chance the contract will pay an additional $3,000

Here, Sanjeev estimates uncertain consideration using the most likely amount.

The most likely outcome will be 60% chance of getting 2,000.

For 6 months = (1,000 × 6 months) + 2,000 = 8,000

Now, we need to calculate for each month. That will be = 8,000 / 6 months = 1,333 per month

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