Exercise 18-8 Wildhorses Agency sells an insurance policy offered by Capital Insurance Company for a commission of $117 on January 2, 2017. In addition, Wildhorse will receive an additional commission of $9 each year for as long as the policyholder does not cancel the policy. After selling the policy, Wildhorse does not have any remaining performance obligations. Based on Wildhorses 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.

1) Determine the transaction price of the arrangement for Wildhorse, assuming 100 policies are sold.

(100 x 117) + (9 x 4.5 x 100) = $15,750

2) Determine the revenue that Wildhorse will recognize in 2017.