Question
On April 1, 2015, Roadbuilder Inc. contracts with SandyEnergy, an oil exploration firm, to build a road in northern Alberta, Canada for $15 million. The
On April 1, 2015, Roadbuilder Inc. contracts with SandyEnergy, an oil exploration firm, to build a road in northern Alberta, Canada for $15 million. The target deadline for completion of the road is June 30, 2015 (i.e., 3 months). The $15 million will be paid to Roadbuilder in three equal installments of $5 million at the end of each month April June. To encourage Roadbuilder to finish the road by the June 30 deadline, the contract also stipulates that (1) Roadbuilder will refund SandyEnergy 1% of the sales price if the road is not complete by July 10, 2015 and (2) SandyEnergy will pay Roadbuilder a bonus equal to 1% of the sales price if the road is complete by June 20, 2015. Roadbuilder estimates that there is a 10% probability the road will not be complete by July 10, 2015. Roadbuilder also estimates that there is a 40% probability the road will be complete by June 20, 2015. Assuming Roadbuilder determines the transaction price as the expected value of consideration, and that a significant reversal of variable consideration is not likely, what is the transaction price for this contract
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