Nair Corp. enters into a contract with a customer to build an apartment building
ID: 470340 • Letter: N
Question
Nair Corp. enters into a contract with a customer to build an apartment building for $1,012,000. The customer hopes to rent apartments at the beginning of the school year and provides a performance bonus of $159,000 to be paid if the building is ready for rental beginning August 1, 2015. The bonus is reduced by $53,000 each week that completion is delayed, determine the transaction price for the contract, assuming (a) Nair is only able to estimate whether the building can be completed by August 1, 2015, or not (Nair estimates that there is a 70% chance that the building will be completed by August 1, 2015), and (b) Nair has limited information with which to develop a reliable estimate of completion by the August 1, 2015, deadline.
SHOW ALL STEPS:
I already know that answer A) is $1,171,000 and part B) is NOT $1,021,000
Transaction price (a) $ (b) $Explanation / Answer
answer to A is correct, i.e. $1,171,000. it can be derived by- the price of the building plus the bonus if it completes in time, i.e. $1,012,000+159,000= $1,171,000
b. in the second case if he is not able to complete intime, he should loose the bonus. the late cost is $53,000 per week, if he completes in time he will get $1,171,000
if he completes one week later- he recieves; $1,118,000
if he completes two weeks later, he will recieve- $1, 065,000
and if he completes three weeks later, he will recive- $1,012,000
even if the compltes the project more than 3 weeks late- he will recieve the orignal cost of the project
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.