Question 1

A construction company enters a contract with a bonus clause. If completed by Dec 31, they get a $100,000 bonus. Based on history, they estimate a 60% chance of finishing on time (getting $100k) and 40% chance of being late ($0). Under ASC 606, what amount of variable consideration should be included in the transaction price?

Accepted Answer

Two methods for variable consideration: 1. Expected Value (sum of probability-weighted amounts) - good for many outcomes. 2. Most Likely Amount - good for binary (yes/no) outcomes. Here, it's binary.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Using Expected Value ($60k) for a binary event.

How to approach this question

Full Answer

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