Question

On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract. Assume Emmet estimates variable consideration as the expected value. How much revenue should Emmet recognize on this contract in 2018?

Answer 1

Answer:

At the start of each year Emmet can recognize $50,000 as they are guaranteed to receive it, but the 15% bonus has a low probability so they should only recognize it when they exceed 90% building occupancy.

Explanation: