Question
ABC. designed and installed customized fences for XYZ. ABC's contract specifies that it will receive a flat fee of $150,000 for providing the customized fences,
ABC. designed and installed customized fences for XYZ. ABC's contract specifies that it will receive a flat fee of $150,000 for providing the customized fences, and an additional $10,000 if 30% of XYZ's new customers indicate they first learned of ABC because of the fences. Based on historical experience, ABC estimates that there is a 90% chance it will achieve the threshold to receive a bonus.
A) Assuming ABC uses the most likely value to estimate the variable consideration, calculate the transaction price.
B) Assuming ABC determines transaction price as the "expected value" of the variable consideration, what would be the appropriate transaction price for this contract?
C) Assume ABC uses the "expected value" approach, but is very uncertain of that estimate due to a lack of experience with similar arrangements. What would be the appropriate transaction price?
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