Reference no: EM132923338

Question - Colon Company enters into a contract with a customer to build a warehouse for $300,000, with a performance bonus of $50,000 that will be paid based on the timing of completion. The performance bonus will be paid fully if completed by the agreed-upon date. The performance bonus decreases by $10,000 per week for every week beyond the agreed-upon completion date. Management estimates that there is a 50% probability that he will complete the project on time, a 30% probability that it will be completed 1 week late, and a 20% probability that it will be completed 2 weeks late.

(a) Determine the transaction price that Colon should compute for this agreement.

(b) Assuming that Colon believes that the probability for completing the project on time is 90% and otherwise it will be finished 1 week late. Determine the transaction price.