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17-50 Chapter 17 Advanced Issues in Revenue Recognition -4 Variable Consideration and Performance Obligations Satisfied over Time On January 2, 201 O 17.3 into a contract with Drewry Corp. to build a new piece of equipment. The contract price is S3 million, and con- LO17.4 struction is expected to take 18 months. Drewry is billed and pays $1,500,000 of the contract price on LO 17.8 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: I If the equipment design receives a U.S. patent by March 15, 2018, Drewry will pay a s300,000 If the US patcent ty Marc01rely nus International Bonus: If the equipment receives approval for international distribution by January 31, 2 ble when a U.S. patent is approved and when international distribution is approved. Drewry will pay a $1,000,000 bonus. The bonuses are payab On the date the contract is signed, IT estimates that there is an 80% chance it will receive US patent protec ес- tion by March 15, 2018, but only a 30 % chance that the equipment will be approved for international distribution. billed Drewry TI received a U.S. patent on the equipment design on November 15, 2017, and immediately 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 pro- ject on April 15, 2018, at a cost of $2,200,000. Required 1. Identify the performance obligations in the contract. 2, Provide the journal entries that TI should make to recognize revenue from the contract.

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