On June 1, 2021, Andres Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Andres will be paid a fixed fee of $56,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Andres estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract.

Required:

1. Assume Andres estimates variable consideration as the expected value. How much revenue should Andres recognize on this contract in 2021?

Question

Business

Marvin

7 July, 08:01

On June 1, 2021, Andres Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2021. Under the terms of the contract, Andres will be paid a fixed fee of $56,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Andres estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract.

Required:

1. Assume Andres estimates variable consideration as the expected value. How much revenue should Andres recognize on this contract in 2021?

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Answers (1)

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Leroy Rios · Answer 1

429,260

Explanation:

Contract commencement date = July 1, 2021

Contract payment term = $56,000 / annual

Additional 15% ($8,400) at the end of each year if occupancy exceeds 90%

Estimate of meeting occupancy threshold = 30%

At the year end 2012, Contract timeline = 6 month (1/2 year)

Base revenue recognized 56000/2 = $28,000

Additional payment = (8400*30%) / 2 = $1260

Revenue recognized at December 31, 2021 = $28000 + $1260 = $29,260