Variable Consideration

On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for $7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of $600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by $150,000. Elkhart provides the following completion schedule:

Expected Completion Date	Probability
November 30, 2019	60%
December 7, 2019	20
December 14, 2019	10
December 21, 2019	5
December 28, 2019	5

Required:

1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price?

   Transaction price

   $fill in the blank 1

2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price?

   Transaction price

   $fill in the blank 2

3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?

   The constraint on the variable consideration included in the transaction price is aimed at preventing

   over-recognitionunder-recognitionover-recognition

   of revenue in one period that would have to be reversed when the uncertainty associated with the variable consideration is resolved.