Sanjeev enters into a contract offering variable consideration. The contract pay

Question

Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time.

Assume Sanjeev estimates variable consideration as the most likely amount. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

(A) $1,333

(B) $1,200

(C) $1,000

(D) $1,400

Explanation / Answer

Solution: Option(A) is correct.

Explanation: Total amount of revenue recognized;

= [($1000*6month)+$2000] ÷ 6 months.

= 8000/6 = $1,333/month

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