On January 2, 2017, TI enters into a contract with Drewry Corp. to build a new piece of equipment. The contract price is $ 3 million, and construction is expected to take 18 months. Drewry is billed and pays $ 1,500,000 of the contract price on January 2, 2017, and will pay the balance at completion. TI estimates that the cost of construction will be $ 2.2 million. Drewry includes two performance bonuses in the contact:
• U. S. Bonus: If the equipment design receives a U. S. patent by March 15, 2018, Drewry will pay a $ 300,000 bonus.
• International Bonus: If the equipment receives approval for international distribution by January 31, 2018, Drewry will pay a $ 1,000,000 bonus. The bonuses are payable when a U. S. patent is approved and when international distribution is approved. On the date the contract is signed, IT estimates that there is an 80% chance it will receive U. S. patent protection by March 15, 2018, but only a 30% chance that the equipment will be approved for international distribution. TI received a U. S. patent on the equipment design on November 15, 2017, and immediately billed Drewry and received its bonus payment. On December 31, 2017, TI has incurred $ 1,760,000 of contract costs and is 80% complete. TI won approval for international distribution on January 15, 2018, and completed the equipment project on April 15, 2018, at a cost of $ 2,200,000.
1. Identify the performance obligations in the contract.
2. Provide the journal entries that TI should make to recognize revenue from the contract.

  • CreatedOctober 05, 2015
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