Brief Exercise 18-6

Swifty Corp. enters into a contract with a customer to build an apartment building for $979,400. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $144,300 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $48,100 each week that completion is delayed. Swifty commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: Completed by Probability August 1, 2018 70 % August 8, 2018 20 August 15, 2018 5 After August 15, 2018 5

Determine the transaction price for this contract.

Probability	Base Contract Price (BCP)	Bonus Price (BP)	Reduction	Earned Amt. BCP+(BP-Reduction)	Transaction Price = Earned Amt. * Probability
70%	979400	144300	0	1123700	786590
20%	979400	144300	48100	1075600	215120
5%	979400	144300	96200	1027500	51375
5%	979400	144300	144300	979400	48970
					1102055 Transaction Price