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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

ekkarill92 answered 2 years ago
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