On June 1, 2018, Emmet Property Management Entered into a 2-Year

question 142

Multiple Choice

On June 1, 2018, Emmet Property Management entered into a 2-year contract to oversee leasing and maintenance for an apartment building. The contract starts on July 1, 2018. Under the terms of the contract, Emmet will be paid a fixed fee of $50,000 per year and will receive an additional 15% of the fixed fee at the end of each year provided that building occupancy exceeds 90%. Emmet estimates a 30% chance it will exceed the occupancy threshold, and concludes the revenue recognition over time is appropriate for this contract.
- Assume Emmet estimates variable consideration as the most likely amount. How much revenue should Emmet recognize on this contract in 2018?

• A) $25,000
• B) $26,125
• C) $28,750
• D) $50,000

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Definitions:

Compounded Semi-annually

This refers to the practice of applying interest to an existing amount plus any accumulated interest twice yearly.

Monthly Mortgage

A regularly scheduled payment which includes principal and interest owed on a mortgage.

Loan Payment

A payment made to reduce the outstanding balance of a loan, often made on a monthly basis.

Compounded Monthly

Pertains to the frequency in which interest earnings are added to the principal investment amount, occurring every month.