Problem 1:

Revenue Recognition

Mohan Consultants provided Fisher Construction with assistance with implementing

various cost

-

savings initiatives. Mohans contract specifies that it will receive a flat rate

of $30,000 and an additional $10,000 if Fisher reaches a pre

-

specified target am

ount of

cost savings. Mohan estimates that there is a 35% chance that Fisher will achieve the

cost savings target.

Required:

1. Assuming Mohan uses an expected value to calculate transaction price, calculate the

amount of the transaction price.

2. Assuming Mohan uses the most likely value as the transaction price, calculate the

amount of the transaction price.

3. Assume Mohan uses the expected value as its estimate of variable consideration, but is

very uncertain of that estimate due to a lack of exp

erience with similar consulting

arrangements. Calculate the transaction price.