E18.

5 (LO 2) (Determine Transaction Price) Jeff Heun, president of Concrete Always, agrees to
construct a concrete cart path at Dakota Golf Club. Concrete Always enters into a contract with
Dakota to construct the path for $200,000. In addition, as part of the contract, a performance
bonus of $40,000 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. Jeff has been involved in a number
of contracts that had performance bonuses as part of the agreement in the past. As a result, he is
fairly confident that he will receive a good portion of the performance bonus. Jeff estimates, given
the constraints of his schedule related to other jobs, that there is 55% probability that he will
complete the project on time, a 30% probability that he will be 1 week late, and a 15% probability
that he will be 2 weeks late.
Instructions
1. Determine the transaction price that Concrete Always should compute for this agreement.
2. Assume that Jeff Heun has reviewed his work schedule and decided that it makes sense to
complete this project on time. Assuming that he now believes that the probability for
completing the project on time is 90% (otherwise it will be finished 1 week late), determine
the transaction price.

E18.15 (LO 3) (Allocate Transaction Price) Appliance Center is an experienced home appliance
dealer. Appliance Center also offers a number of services for the home appliances that it sells.
Assume that Appliance Center sells ovens on a standalone basis. Appliance Center also sells
installation services and maintenance services for ovens. However, Appliance Center does not offer
installation or maintenance services to customers who buy ovens from other vendors. Pricing for
ovens is as follows.
Oven only $ 800
Oven with installation service 850
Oven with maintenance services 975
Oven with installation and maintenance services 1,000
In each instance in which maintenance services are provided, the maintenance service is separately
priced within the arrangement at $175. Additionally, the incremental amount charged by
Appliance Center for installation approximates the amount charged by independent third parties.
Ovens are sold subject to a general right of return. If a customer purchases an oven with
installation and/or maintenance services, in the event Appliance Center does not complete the
service satisfactorily, the customer is only entitled to a refund of the portion of the fee that exceeds
$800.
Instructions
1. Assume that a customer purchases an oven with both installation and maintenance services
for $1,000. Based on its experience, Appliance Center believes that it is probable that the
installation of the equipment will be performed satisfactorily to the customer. Assume that
the maintenance services are priced separately (i.e., the three components are distinct).
Identify the separate performance obligations related to the Appliance Center revenue
arrangement.
2. Indicate the amount of revenue that should be allocated to the oven, the installation, and
the maintenance contract.