Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Majestic Corporation provides call-center ordering services for Essential Oils magazine. Majestic receives an annual fee of $200,000 for providing such services and is also eligible

Majestic Corporation provides call-center ordering services for Essential Oils magazine. Majestic receives an annual fee of $200,000 for providing such services and is also eligible to receive a performance bonus up to $65,000 if the average customer wait times are below certain thresholds at the end of the year.

Using historical results as well as current expectations, Majestic estimates the chances of achieving the different performance bonuses as shown in the table here.

Assume there are NO revenue constraints, and the entity uses the expected value approach to record variable consideration when recognizing revenue during the period. Which is the amount of the performance bonus management can recognize in the transaction price?

Average wait times Performance Bonus % Chance of Achieving
< 1 minute $65,000 15%
< 2 minutes $45,000 10%
< 3 minutes $25,000 50%
< 4 minutes $5,000 20%
< 5 minutes 0 5%

a. Management would include the variable consideration in the transaction price in the amount of $27,750.

b. Management would not include the variable consideration in the transaction price because the amount of consideration is outside of the entity's influence.

c. Management would include the variable consideration in the transaction price in the amount of $25,000.

d. Management would not include the variable consideration in the transaction price because the amount of consideration is uncertain and is not expected to be resolved for a long period of time.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Monthly Bank Reconciliation Statement Log

Authors: Elizabeth S.R.M. Cole

1st Edition

1541036824, 978-1541036826

More Books

Students also viewed these Accounting questions

Question

What are their resources?

Answered: 1 week ago