Adventureland Amusement Park (AAP) in Pennsylvania announced in February 2021 that they would be expanding the park for the 2022 season.  The expansion will include a new rollercoaster named “Outlaw Run, building a new restaurant “The Chocolatier”, and a new store “Adventure Supply Co.”  Each will be located in a different section of the amusement park.   The price for the project is $15 million. 

Walsh Amusement Park Construction (WAPC)  has extensive experience in amusement park construction  in the United States. On February 3^rd, 2021 WAPC and AAP entered into a written agreement for WAPC to build Outlaw Run, The Chocolatier, and Adventure Supply Co. The target completion date of all construction is May 15, 2022.  AAP decided to hire one company to do all of the work even though the work could have been split between different contractors.  AAP has excellent credit.

Construction began on February 10^th, 2021 and AAP paid WAPC $15 million on February 10^th, 2021.  Interest rates on comparable projects are 6% and equates to $1,200,000 for the length of the project. 

Stand alone pricing for this job were as follows: 

Construction of Outlaw Run                            $12 million,

Construction of The Chocolatier:                                $ 5 million

Construction of Adventure Supply Co:            $ 3 million    

 

AAP is offering WAPC an incentive to ensure completion of the construction on a timely basis.  AAP is offering WAPC the following incentive:

            Completion of Outlaw Run by March 1, 2022:                        $500,000 Bonus

            Completion of Outlaw Run by April 1, 2022:                          $250,000 Bonus

Completion of Outlaw Run  by May 1, 2022:                          $  50,000 Bonus

After May 1, 2022                                                                    $           0 Bonus

WAPC estimates that based upon their significant experience in the industry they have a 60% likelihood of completing the construction by March 1, a 20% likelihood by April 1^st, 10% likelihood of completion by May 1^st and 10% likelihood the project will be completed on time. 

WAPC’s fiscal year is January 1- December 31 and is publicly traded. 

Required:

Apply the requirements of revenue from contracts with customers.   For each of the five steps:

• Describe how the revenue from contracts with customers applies to this transaction.  For any step that is not applicable simply indicate that it is not applicable.  Clearly label all of your work.  Make sure you fully explain/document all of the steps and your conclusions.