Reference no: EM132683766
Carla Corp. enters into a contract with a customer to build an apartment building for $1,031,300. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $144,300 to be paid if the building is ready for rental beginning August 1, 2021. The bonus is reduced by $48,100 each week that completion is delayed.
Carla commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:
Completed by Probability
August 1, 2021 70 %
August 8, 2021 20
August 15, 2021 4
After August 15, 2021 6
Problem (a) Determine the transaction price for the contract, assuming Carla is only able to estimate whether the building can be completed by August 1, 2021, or not (Carla estimates that there is a 70% chance that the building will be completed by August 1, 2021). (If answer is 0, please enter 0. Do not leave any fields blank.)
Problem (b) Determine the transaction price for the contract, assuming Carla has limited information with which to develop a reliable estimate of completion by the August 1, 2021, deadline.
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