White Labs is a wholesaler who sells microscopes for use in high schools to retailers. On August 1 White contracts with the XYZ to sell 1,000 microscopes to XYZ to be delivered September 1. The contract price is set at $370 each, with a 10% volume discount if sales exceed 2,500 microscopes within the year. The probability of sales exceeding 2,500 microscopes is expected to be 55%. Ignore any constraints on variable consideration. Using the most-likely-amount approach, the consideration to be recognized is estimated to be ________.
A) $333,000
B) $370,000
C) $203,500
D) $37,000

Question

Quizplus · Accepted Answer

The most-likely-amount approach considers the probability of exceeding the volume discount threshold. Since the probability of sales exceeding 2,500 microscopes is 55%, the most likely outcome is that the volume discount will not be achieved. Therefore, the consideration to be recognized is $370,000 (1,000 microscopes x $370 per microscope).

White Labs Is a Wholesaler Who Sells Microscopes for Use