Question
In: Accounting
On June 1, 2021, Royal Property Management entered into a one-year contract to oversee leasing and...
On June 1, 2021, Royal Property Management entered into a
one-year contract to oversee leasing and maintenance for an
apartment building. The contract starts on July 1, 2021. Under the
terms of the contract, Royal will be paid a fixed fee of $59,000
and will receive an additional 15% of the fixed fee at the end of
the contract provided that building occupancy exceeds 90%. Royal
estimates a 30% chance it will exceed the occupancy threshold, and
concludes the revenue recognition over time is appropriate for this
contract.
Assume that Royal accrues revenue each month, and estimates
variable consideration as the most likely amount. On November 1,
Royal revises its estimate of the chance the building will exceed
the 90% occupancy threshold to a 70% chance. What is the total
amount of revenue Royal should recognize on this contract in
November of 2021?
Multiple Choice
-
$8,604
-
$4,755
-
$4,130
-
$4,475
Solutions
Expert Solution
| Answer: | |
| Number of month from June to Nov. 1 = 5 months | |
|
Number of month from July to Nov. 1 =
4 months (Since Contracts Started ) |
|
|
Revenue to be recognised for 4
months = $ 59,000 x 4 / 12 |
$ 19,667 |
|
Total Fees = $ 59,000 + ( $ 59,000 x
15 % ) = $ 67,850 |
|
|
Revenue recognized at the end of
november = $ 67,850 x 5 /12 |
$ 28,271 |
|
Revenue recognized in November of
2021 = $ 28,271 (-) $ 19,667 |
$ 8,604 |
| Option (a) is Correct |
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