70.2K

Verified Solution

Link Copied!

Scenario: Absco signed a contract with Jeans Are Us to ship $300,000$ pairs of jeans. The

contract price is $$20$ per pair. These jeans are very fashionable at the current time but are not

expected to stay in style for a long period of time. Because the jeans are new, Absco has only

manufactured $10,000$ pairs. The contract specifies that Absco will immediately ship the $10,000$

pairs and then will ship the remaining portions of the $290,000$ pairs as soon as possible after a

specific number of pairs are requested by Jeans Are Us$.$ If Absco has shipped fewer than

$300,000$ pairs by the end of the year, it will ship the remaining jeans to fulfill the contract at the

end of year one. Because Jeans Are Us is concerned that the demand for jeans will be heavy, it

has provided an incentive in the contract for Absco to expedite production of the jeans. Jeans

Are Us will provide a bonus to Absco if it delivers the jeans within a certain period.

The percentage bonus is as follows:

Absco has never been involved in a transaction that involves bonuses for delivery expediency.

In addition, because of the newness of the style of jeans on the market, Jeans Are Us is not able

to give Absco any idea of when it will request jeans and how many it will request each time.

Absco uses the expected value method of measuring variable consideration and determines

that the expected value of the bonus consideration is $$180,000.$ However, Absco is quite

uncertain how quickly it can manufacture these jeans.

Using Accounting Standards Codification, Section ASC $606$ from Revenue From Contracts With

Customers $($Topic $606)$ as a source and the expected value method,

State the total transaction price with calculations in one page.

Your statement and calculations should reference the Accounting Standards Codification,

Section ASC $606$ using proper in$-$text citations.

Answer & Explanation Solved by verified expert

See Answer