Question

On June 1, 2021, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Emmet will be paid a fixed fee of $54,000 per year and will receive an additional 10% of the fixed fee at the end of each year provided that building occupancy exceeds 80%. Emmet estimates a 20% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. Assume Emmet estimates variable consideration as the most likely amount. How much revenue should Emmet recognize on this contract in 2021? Multiple Choice $27,540 $54,000 $30,750 $27,000

Answer 1

$27,540

Step-by-step explanation:

Expected amount = Possible amount into probability

Expected amount = ($54,000*80%) + ($54,000+10%)*20%

Expected amount = $43,200 + ($54,000+$5,400)*20%

Expected amount = $43,200 + $59,400*20%

Expected amount = $43,200 + $11,880

Expected amount = $55,080

Revenue to be recognized on this contract in 2021 = $55,080 * 6/12 = $27,540.