Felix Corp

question 26

Essay

Felix Corp. is evaluating a contract to determine proper revenue recognition. The contract is for construction of 10 yachts for a total price of $10,000,000. The customer needs the boats in its showrooms by March 1, 2018, for the yacht purchase season; the customer will provide a bonus payment of $100,000 if all yachts are delivered by the March 1 deadline. The bonus is reduced by $25,000 each week that the boats are delivered after the deadline until no bonus is paid if the boats are delivered after March 22, 2018. Felix frequently includes such bonus terms in it contracts and thus has good historical data for estimating the probabilities of completion at different dates. It estimates an equal probability (25%) for each full delivery outcome. How should Felix determine the transaction price under FASB ASC 606 for this contract?

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Definitions:

Female Orgasmic Disorder

In women, recurrent delay in or absence of orgasm after having reached the excitement phase of the sexual response cycle (also called anorgasmia).

Female Sexual Interest/Arousal

Pertains to the patterns of sexual attraction and excitement experienced by females, including psychological and physiological components.

Prevalence Rate

The proportion of a population found to have a condition or disease at a specific time.

Diagnosable Levels

Thresholds of symptom severity or frequency that must be met for a formal diagnosis to be made.