Question

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 $69,000 and will receive an additional 10% of the fixed fee at the end of the contract provided that building occupancy exceeds 80%. Royal estimates a 20% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract.

Assume Royal estimates variable consideration as the expected value. How much revenue should Royal recognize on this contract in 2021?

Multiple Choice

• $35,190

• $38,250

• $34,500

• $69,000

Which of the following is not a performance obligation?

Multiple Choice

• A good that the seller could sell separately and that is separately identifiable from other goods or services in the contract.

• An extended warranty.

• A right of return.

• An option for a customer to purchase goods under terms that are more advantageous than those enjoyed by other customers.

Answer 1

Answer:

1)

Total Revenue        = Fixed Fees + ( Fixed Fee x % of Addl Fee x % of Occcupancy )      =     $ 69,000 + ( $ 69,000 x 10% x 20% )      =      $ 69,000 + $ 1,380      =       $ 70,380

Revenue recognized for 2021 contract for 6 months,               =    $ 70,380 x 6/ 12               =     $ 35,190

$ 35,190

Option ( a ) is Correct

2)

Right to Retun is not a Performance Obligation

Reason : Since it is not a Separete Perofrmance Obligation, Since it Exists at the time of delivey of the goods . Return to return Completed the Perofrmance Obligation

Option ( C ) is Correct