Question

Carla Vista Construction enters into a contract with a customer to build a warehouse for $1020000 on March 30, 2021 with a performance bonus of $60000 if the building is completed by July 31, 2021. The bonus is reduced by $12000 each week that completion is delayed. Carla Vista commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:

Completed by Probability
July 31, 2021 60%
August 7, 2021 30%
August 14, 2021 5%
August 21, 2021 5%

The transaction price for this transaction is

A. $665400
B. $653400
C. $1073400
D. $1020000

Answer 1

The transaction price for this transaction is $1,073,400

Step-by-step explanation:

In this question, we are concerned with calculating the transaction price for the transaction.

To calculate this, we compute the transaction price by multiplying the completion outcomes with the stipulated amount on each of the dates(putting in mind that we have to subtract $12,000 which is the bonus reduced by each week), we proceed as follows;

Transaction price = (60% × $60,000) + (30% × $48,000) + (5% × $36,000) + (5% × $24,000) = $36,000 + $14,400 + $1,800 + $1,200 = $53,400

The total transaction price for the transaction = $1,020,000 + $53,400 = $1,073,400