Moover Construction Enters into a Contract with a Customer to Build

Essay

Moover Construction enters into a contract with a customer to build a warehouse for $900,000 on June 30, 2017, with a performance bonus of $60,000 if the building is completed by October 31, 2017. The bonus is reduced by
$20,000 each week that completion is delayed. The contract also states that if the warehouse receives a favorable safety inspection rating from government inspectors by November 30, Moover will receive a performance bonus of
$40,000.
Moover commonly includes these completion bonuses in its contracts and, based on prior experience, estimates the following completion outcomes: In addition, Moover estimates there is a 90% chance that the warehouse will receive a favorable safety inspection rating upon timely completion.
Required:
a. Assume Moover uses the expected value approach. Determine the transaction price for this transaction.
b. Assume Moover uses the most likely amount approach. Determine the transaction price for this transaction.