Sanjeev Enters into a Contract Offering Variable Consideration

question 311

Multiple Choice

Sanjeev enters into a contract offering variable consideration. The contract pays him $1,000/month for six months of continuous consulting services. In addition, there is a 60% chance the contract will pay an additional $2,000 and a 40% chance the contract will pay an additional $3,000, depending on the outcome of the consulting contract. Sanjeev concludes that this contract qualifies for revenue recognition over time.
- Assume that Sanjeev estimates variable consideration as the most likely amount. After Sanjeev has recognized revenue for two months of the contract, he changes his assessment of the chance the contract will pay him $3,000 to 70%. What adjustment to revenue should Sanjeev recognize to account for that change in estimate?

• A) Debit of $1,000
• B) Debit of $334
• C) Credit of $1,000
• D) Credit of $334

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Definitions:

Non-Value-Added Cost

Expenses that do not contribute to the value or functionality of a product or service, often targeted for reduction or elimination.

Market Research

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Organized series of promotional efforts aimed at a specific target audience over a particular timeframe to achieve predefined marketing objectives.

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A growth strategy where a business seeks to sell its existing products into new markets to attract additional customers.