Question

Sunland Construction enters into a contract with a customer to build a warehouse for $890000 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. Sunland 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. $890000
b. $587400
c. $575400
d. $943400

Answer 1

The transaction price for this transaction is $943,400. The right answer is d

Step-by-step explanation:

In order to calculate the transaction price for this transaction we would have to make the following calculation:

Transaction Price=value to build the warehouse+completion outcomes

value to build the warehouse=$890,000

completion outcomes=($60,000 * 60%) + ($48,000*30%) + ($36,000 * 5%) + ($24,000 * 5%) = $53,400

Therefore, Transaction Price = $890,000 + $53,400

Transaction Price = $943,400

The transaction price for this transaction is $943,400