Question

Waterway Corp. enters into a contract with a customer to build an apartment building for $1,046,900. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $148,500 to be paid if the building is ready for rental beginning August 1, 2018. The bonus is reduced by $49,500 each week that completion is delayed. Waterway commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes:Completed by ProbabilityAugust 1, 2018 70 %August 8, 2018 20 August 15, 2018 4 After August 15, 2018 6 (a) Determine the transaction price for the contract, assuming Waterway is only able to estimate whether the building can be completed by August 1, 2018, or not (Waterway estimates that there is a 70% chance that the building will be completed by August 1, 2018). (If answer is 0, please enter 0. Do not leave any fields blank.)Transaction Price __________ $(b) Determine the transaction price for the contract, assuming Waterway has limited information with which to develop a reliable estimate of completion by the August 1, 2018, deadline. (If answer is 0, please enter 0. Do not leave any fields blank.)Transaction Price ___________ $

Answer 1

Answer:

A. $1,195,400

B. $1,172,630

Explanation:

A. Calculation to Determine the transaction price for the contract

Transaction price=$1,046,900+$148,500

Transaction price=$1,195,400

Therefore the transaction price for the contract will be $1,195,400

B . Calculation to determine the transaction price for the contract.

First step is to Calculate the probabilities

August 1, 2018=$148,500*.7

August 1, 2018=$103,950

August 8, 2018=$99,000*.2

($148,500-$49,500)

August 8, 2018=$19,800

August 15, 2018=$49,500*.04

August 15, 2018=$1,980

August 15, 2018=$0*.06

August 15, 2018=0

Now let calculate the Transaction price

Total transaction price =$1,046,900+$103,950+$19,800+$1,980

Total transaction price =$1,172,630

Therefore The Total transaction price will be $1,172,630