BE 5-14 Variable consideration Leo Consulting enters into a contract with Highgate University to restructure Highgate's processes for purchas- ing goods from suppliers. The contract states that Leo will earn a fixed fee of $25.000 and earn an additional $10.000 if Highgate achieves $100,000 of cost savings. Leo estimates a 50% chance that Highgate will achieve S100,000 of cost savings. Assuming that Leo determines the transaction price as the expected value of expected on LO5-6 consideration, what transaction price will Leo estimate for this contract? In January 2018, Continental Fund Services, Inc., enters into a one-year contract with a client to provide invest- ment advisory services. The company will receive a management fee, prepaid at the beginning of the contract that is calculated as 1% of the client's $150 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 20% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a S2 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what trans tion price should Continental base revenue recognition? BE 5-15 Variable consideration LO5-6 Finerly Corporation sells cosmetics through a network of independent distributors. Finerly shipped cosmetics to its distributors and is considering whether it should record $300,000 of revenue upon shipment of a new line of cosmetics. Finerly expects the distributors to be able to sell the cosmetics, but is uncertain because it has little experience with selling cosmetics of this type. Finerly is committed to accepting the cosmetics back from the distributors if the cosmetics are not sold. How much revenue should Finerly recognize upon delivery to its distributors? BE 5-16 Right of return L05-6 BE 5-17 Assume that Amazon.com sells the MacBook Pro, a computer produced by Apple, for a retail price of Principal or agent $1,500. Amazon arranges its operations such that customers receive products directly from Apple Stores rather than Amazon. Customers purchase from Amazon using credit cards, and Amazon forwards cash to Apple equal to the retail price minus a S150 commission that Amazon keeps. In this arrangement, how much revenue will Amazon recognize for the sale of one MacBook Pro? LO5-6 BE 5-18 Payments by the seller to the customer Lewis Co. sold merchandise to AdCo for $60,000 and received $60,000 for that sale one month later. One week prior to receiving payment from AdCo, Lewis made a $10,000 payment to AdCo for advertising services that have a fair value of $7,500. After accounting for any necessary adjustments, how much revenue should Lewis Co. record for the merchandise sold to AdCo? BE 5-19 O'Hara Associates sells golf clubs, and with each sale of a full set of clubs provides complementary club-fitting Estimating
