Question
FlintCorp. enters into a contract with a customer to build an apartment building for $995,600. The customer hopes to rent apartments at the beginning of
FlintCorp. enters into a contract with a customer to build an apartment building for $995,600. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $145,500to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $48,500each week that completion is delayed.Flintcommonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
Completed byProbability
August 1, 2021 70%
August 8, 2021 20 %
August 15, 2021 5%
After August 15, 2021 5%
(a)Determine the transaction price for the contract, assumingFlintis only able to estimate whether the building can be completed by August 1, 2021, or not (Flintestimates that there is a70% chance that the building will be completed by August 1, 2021).(If answer is 0, please enter 0. Do not leave any fields blank.)
Transaction Price$
enter the Transaction Price in dollars
(b)Determine the transaction price for the contract, assumingFlinthas limited information with which to develop a reliable estimate of completion by the August 1, 2021, deadline.
Transaction Price$
enter the Transaction Price in dollars
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