Reference no: EM132941318
Question - On September 1, 2019, Conboy Construction signed a contract with Venuti Enterprises to construct a new corporate headquarters (i.e. the building) and parking garage on land that Venuti owns. Conboy determines that control of the building is passed to Venuti as it is constructed but control of the parking garage will transfer when the garage is completed. Venuti will use the garage for its employees and open it for public parking.
The contract price is $40 million for both the building and the garage, but Venuti includes an incentive for early or late completion of the building and garage. For each day before September 1, 2021 that the building and garage are completed, the promised consideration will increase by $30,000. For each day after September 1, 2021 that the building and garage are incomplete, the promised consideration will be reduced by $30,000. Conboy considers it 75% likely that they will complete the building and garage seven days early, 15% likely that it will complete the building/garage on time and 10% likely that the building/garage will be delayed five days. Conboy has extensive experience in the industry and a revenue reversal is unlikely. The building is constructed based on Venuti's specifications and would require extensive alterations if used by another entity. The transaction has commercial substance and Venuti is in good financial health.
The parties have also agreed that the building will be inspected, and assigned a green building certification level. If the building achieves the certification level specified in the contract, Conboy will be entitled to a bonus of $300,000. Conboy has been highly successful in achieving the certification on prior building projects and believes that they are 90% likely to receive the certification.
The terms of the contract stipulate that Venuti will make a $40,000,000 payment to Conboy upon the signing of the contract. The annual rate of interest during the duration of the project is 4% and equates to total interest of $3,200,000
Conboy has constructed similar buildings and garages with standalone selling prices of $36,000,000 and $12,000,000.
Required - Perform the five steps Revenue from Contracts with Customers. Clearly label all of your work.
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