Final answer:
Sanjeev should adjust the revenue recognized to reflect the increased likelihood of receiving the higher additional amount after changing his assessment. The adjustment would be an additional $75 per month for the remaining four months of the contract.
Step-by-step explanation:
The question is related to revenue recognition and accounting for changes in estimates of variable consideration. Originally, Sanjeev's contract indicated a 60% chance to receive an additional $3,400 and a 40% chance to receive an additional $4,400. After two months, Sanjeev reassesses the likelihood of receiving the higher amount ($4,400) to 70%. To account for this change, Sanjeev needs to adjust the revenue recognized in the financial statements.
Originally, the expected variable consideration was:
(0.6 \* $3,400) + (0.4 \* $4,400) = $2,040 + $1,760 = $3,800.
After reassessment, the expected variable consideration is:
(0.3 \* $3,400) + (0.7 \* $4,400) = $1,020 + $3,080 = $4,100.
The adjustment to revenue is the difference between the new and the old estimates, divided by the remaining performance obligation period after the adjustment.
($4,100 - $3,800) = $300 over 4 months (since two months have already been recognized) = $75 per month.
Thus, Sanjeev should recognize an additional $75 per month for the remaining four months to accurately reflect the change in estimate.