In January 2024, Continental Fund Services, Incorporated, enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1.5% of the client's $310 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 15% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $1.5 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition? Note: Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50). Transaction price million

In January 2024, Continental Fund Services, Incorporated, enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1.5% of the client's $310 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 15% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $1.5 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition? Note: Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50). Transaction price million

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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In January 2024, Continental Fund Services, Incorporated, enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1.5% of the client's $310 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 15% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $1.5 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition? Note: Enter your answer in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50). Transaction price million
In January 2018, Continental Fund Services, Inc., enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract,that is calculated as 1% of the client’s $150 million total assets being managed. In addition, the contract specifiesthat Continental will receive a performance bonus of 20% of any returns in excess of the return on the Dow JonesIndustrial Average market index. Continental estimates that it will earn a $2 million performance bonus, but isvery uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition?
In January 2021, Continental Fund Services, Inc., enters into a one-year contract with a client to provide investment advisory services. The company will receive a management fee, prepaid at the beginning of the contract, that is calculated as 1% of the client’s $150 million total assets being managed. In addition, the contract specifies that Continental will receive a performance bonus of 20% of any returns in excess of the return on the Dow Jones Industrial Average market index. Continental estimates that it will earn a $2 million performance bonus, but is very uncertain of that estimate, given that the bonus depends on a highly volatile stock market. On what transaction price should Continental base revenue recognition?
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On Jan. 1, 2022, ABC Corporation would be entering into an outsourcing contract which requires payment of P100,000 annually for the first five years starting Dec. 31, 2022 and P150,000 annually for ten years after that. Assuming that ABC has an effective cost of capital of 8%, what is the equivalent annual cost of this contract?
On May 1, 2024, Meta Computer, Incorporated, enters into a contract to sell 6,000 units of Comfort Office Keyboard to one of its clients, Bionics, Incorporated, at a fixed price of $106,800, to be settled by a cash payment on May 1. Delivery is scheduled for June 1, 2024. As part of the contract, the seller offers a 25% discount coupon to Bionics for any purchases in the next six months. The seller will continue to offer a 5% discount on all sales during the same time period, which will be available to all customers. Based on experience, Meta Computer estimates a 50% probability that Bionics will redeem the 25% discount voucher and that the coupon will be applied to $12,000 of purchases. The stand-alone selling price for the Comfort Office Keyboard is $19.80 per unit. Required: 1. How many performance obligations are in this contract? 2. Prepare the journal entry that Meta would record on May 1, 2024. 3. Assume the same facts and circumstances as above, except that Meta gives a 5%…
Velocity, a publicly traded corporation with a calendar fiscal year, entered into an agreement with Wedding Planners, Inc. a wedding event planning company on February 14, 2022. The contract specifies that the services will begin on March 1, 2022. Velocity will design a marketing strategy to increase “hits” on Wedding Planners website by 40%. The contract will last for 3 months (though May 31, 2022). Wedding Planners promises to pay $25,000 at the beginning of each month for Velocity’s services with the first payment on March 1, 2022. At the end of the contract, Velocity will be entitled to an additional $15,000 bonus, depending on whether traffic on Wedding Planners’ website has increased by the desired 40%. At the inception of the contract, Velocity estimated there is an 85% chance that they will earn the $15,000 bonus and 15% likelihood they will not. These probabilities are based on past experience with similar projects and the company has significant experience in these…
On June 1, 2021, Consulting Inc. enters into a contract with a customer to build a website for its start-up business for $100,000, plus a possible performance bonus. The contract includes the creation of the website to communicate information about the customer’s products, to sell products, and to collect payment for the products. The target completion date for the project is October 22, 2021. The pricing of the customized website includes a potential performance bonus to be paid to Consulting Inc. if the website is completed between October 1 - October 22, 2021. The performance bonus will be reduced each week closer to the October 22, 2021 deadline. A bonus will not be paid if the project is completed after October 22, 2021. Based on Consulting Inc.’s historical experience and the assessment of its current capabilities, the potential bonuses/probability are summarized in the table below: Completion Date Probability of Outcome Performance Bonus October 1, 2021…
On July 1, Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $32,000 at the end of each month, and, if total cost savings reach a specific target, PU will pay an additional $27,000 to Wiggins at the end of the contract. Wiggins estimates a 80% chance that cost savings will reach the target. Assume that Wiggins estimates uncertain consideration as the most likely amount. Required: Do the following for Wiggins: a. Prepare the journal entry on July 31 to record the first month of revenue under the contract. b. Assuming total cost savings exceed the target, prepare the journal entry, if any, on October 31 to record receipt of the $27,000 bonus (ignore the normal October payment of $32,000). c. Assuming total cost savings do not reach the target, prepare the journal…
On September 30, 2019, STONE REACH Co., Inc. was awarded the contract to build a 1,000 room hotel for P24,000,000. Among others, the parties agreed to the following:1.Ten percent mobilization fee (deductible from "final billing") payable within ten days from the signing of the contract.2.Retention of ten per cent on all billings (to be paid with the final billing, upon completion and acceptance of the project); and 3.Progress billings are to be paid within 2 weeks upon acceptance. By the end of 2019, the company had presented one progress billing, corresponding to 10% completion, which was evaluated and accepted by the client on December 29, 2019 for payment in January of the next year. In 2019, assuming use of the percentage-of-completion method of accounting STONE REACH Co., Inc. received a total fee of
On July 1, Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $27,000 at the end of each month, and, if total cost savings reach a specific target, PU will pay an additional $22,000 to Wiggins at the end of the contract. Wiggins estimates a 70% chance that cost savings will reach the target. Assume that Wiggins estimates variable consideration as the expected value. Required: Prepare the journal entry on July 31 to record the first month of revenue under the contract. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
On January 2, 2019, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $3,200,000, and construction is expected to take 18 months. Drewry is billed and pays $1,600,000 of the contract price on January 2, 2019, and will pay the balance at completion. TI estimates that the cost of construction will be $2,300,000. Drewry includes two performance bonuses in the contact: • U.S. Bonus: If the equipment design receives a U.S. patent by March 15, 2020, Drewry will pay a $200,000 bonus. • International Bonus: If the equipment receives approval for international distribution by January 31, 2020, Drewry will pay a $1,000,000 bonus. The bonuses are payable when a U.S. patent is approved and when international distribution is approved. On the date the contract is signed, TI estimates that there is an 80% chance it will receive U.S. patent protection by March 15, 2020, but only a 30% chance that the equipment will be approved for…