Reference no: EM132488454

Point 1: Parkview, Inc. specializes in waterproofing homes, office buildings and other structures. Recently it completed a waterproofing renovation for a building at a local university. The contract specifies that Parkview will receive a flat lump sum of $100,000 for the renovation, and an additional $2,500 if there is no roof leaking through the roof within the first year after the renovation. The seller estimates that there is an 85% chance that no leakage will occur within the first year.

Required:

Question (a) Assuming Parkview uses the most likely value to estimate the variable consideration, calculate the transaction price.

Question (b) Assuming Parkview determines transaction price as the "expected value" of the variable consideration, calculate the transaction price.

Question (c) Assume Parkview uses the "expected value" approach, but is very uncertain of that estimate due to a lack of experience with similar renovations. Calculate the transaction price.