Question

Question 1 Part A and B

A.

Mary signed up and paid $1,440 for a 6 month ceramics course on June 1^st with Choplet Ceramics. As of August 1^st, Choplet’s accounting records would indicate:

Multiple Choice

• $480 of revenue, $960 of accounts receivable

• $480 of revenue, $960 of deferred revenue

• $1,440 of revenue, $1,440 of cash

• $960 of revenue, $480 of accounts receivable

B. [The following information applies to the questions displayed below.]

On April 1^st, Bob the Builder entered into a contract of one-month duration to build a barn for Nolan. Bob is guaranteed to receive a base fee of $4,600 for his services in addition to a bonus depending on when the project is completed. Nolan created incentives for Bob to finish the barn as soon as he can without jeopardizing the structural integrity of the barn. Nolan offered to pay an additional 25% of the base fee if the project finished 2 weeks early and 15% if the project finished a week early. The probability of finishing 2 weeks early is 25% and the probability of finishing a week early is 60%.

What is the expected transaction price with variable consideration estimated as the expected value?

Multiple Choice

• $5,302

• $4,600

• $6,164

• $4,370

Answer 1

A

Answer is $480 of revenue, $960 of deferred revenue

​​​​​​Choplet would recognise revenue of $ 480 (1440*2/6) and deferred revenue of $960 (1440*4/6)

B Answer is $5,302

Expected transaction price = 4600+(4600*25%*25%)+(4600*15%*60%)= 4600+287.5+414 = 5302 (rounded)