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 expected value. What is the amount of revenue Sanjeev would recognize for the first month of the contract?

Answer 1

Answer:

it will recognize a revenue for 1,400 dollars.

Explanation:

it will recognize the 1,000/month accrued revenue and the expected outcome based on probability:

 60%  addtional 2,000  = 1,200

 40%  additional 3,000  = 1,200

 totla                                  2,400

amount recognized for a single month: 2,400/ 6 = 400

total: 1,000 + 400 = 1,400