Agee enters into a contract with Pipkin Video to add their programs to Agee\'s n
ID: 2599780 • Letter: A
Question
Agee enters into a contract with Pipkin Video to add their programs to Agee's network. Pipkin will pay Agee an upfront fee of $250,000 fixed fee for 12 months of access, and will also pay a $100,000 bonus if Agee's users access Pipkin Video for at least 10,000 hours during the 12-month period. Agee estimates that it has a 55% chance of earning the $100,000 bonus.
a. Determine the transaction price for this contract using the expected value approach.
b. Determine the transaction price for this contract using the most likely value approach.
c. Using the most likely value from part (b), record the journal entries for the receipt of the upfront fee and the first month of revenue.
Explanation / Answer
Part 1 - Transaction price using Expected Value approach
Part 2 - Transaction price using Most likely approach
Step 3 - Journal Entry Worksheet for 1st Month Revenue using most likely approach
Particulars Amount Upfront Fees ($250000 * 100%) $250000 Bonus Income ($100000 * 55%) $55000 Total Transaction Price $305000