Question

Sanjeev enters into a contract offering variable consideration. The contract pays him $2,000/month for six months of continuous consulting services. In addition, there is a 80% chance the contract will pay an additional $4,800 and a 20% chance the contract will pay an additional $1,200, 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

Answer 1

The amount of revenue Sanjeev would recognize for the first month of the contract is $2,800.

Step-by-step explanation:

The most likely outcome is that Sanjeev receives the $4,800 bonus (likelihood = 80%),

in the case he receives the bonus,

Sanjeev would be paid a total of ($2,000 × 6 months) + $4,800

= $16,800

Therefore, Sanjeev would recognize $16,800 ÷ 6 = $2,800 each month.