Exercise 18-8

Orioles Agency sells an insurance policy offered by Capital Insurance Company for a commission of $101 on January 2, 2017. In addition, Oriole will receive an additional commission of $11 each year for as long as the policyholder does not cancel the policy. After selling the policy, Oriole does not have any remaining performance obligations. Based on Orioles significant experience with these types of policies, it estimates that policyholders on average renew the policy for 4.5 years. It has no evidence to suggest that previous policyholder behavior will change.

Part A: Determine the transaction price of the arrangement for Oriole, assuming 90 policies are sold:

Part B: Determine the revenue that Oriole will recognize in 2017: