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 $60,000 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 25% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. Assume that Emmet accrues revenue each month, and estimates variable consideration as the most likely amount. On November 1, Emmet revises its estimate of the chance the building will exceed the 80% occupancy threshold to a 60% chance. What is the total amount of revenue Emmet should recognize on this contract in November of 2021

Answer 1

$7,500

Step-by-step explanation:

Calculation to determine the total amount of revenue Emmet should recognize on this contract in November of 2021

First step is to calculate the revenue amount recognized for July, August, September, and October

Recognized revenue =$60,000 × 4/12

Recognized revenue = $20,000

(July, August, September, and October=4 months )

Second step is to calculate the revenue amount to be recognized at the beginning of November

Recognized revenue= $60,000 + ($60,000 × 10%)

Recognized revenue= $66,000

Third step is to calculate the revenue amount recognized at the end of November

Recognized revenue=$66,000 × 5/12

Recognized revenue = $27,500

Now let calculate the total amount of revenue Emmet should recognize on this contract in November of 2021

Total Recognized revenue=$27,500 - $20,000

Total Recognized revenue=$7,500

Therefore the total amount of revenue Emmet should recognize on this contract in November of 2021 will be $7,500