January 2, 2019, 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, 2019, 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, 2020, Drewry will pay a $300,000 bonus.
• International Bonus: If the equipment receives approval for international distribution by January 31, 2020, 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, 2020, 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, 2019, and immediately billed Drewry and received its bonus payment. On December 31, 2019, TI has incurred $1,760,000 of contract costs and is 80% complete. TI won approval for international distribution on January 15, 2020, and completed the equipment project on April 15, 2020, at a cost of $2,200,000.

Required:

1. 1. Identify the performance obligations in the contract.
2. 2. Provide the journal entries that TI should make to recognize revenue from the contract.

College Accounting, Chapters 1-27

Managerial Accounting: The Cornerstone of Business Decision-Making

Accounting Information Systems

Corporate Financial Accounting

Financial & Managerial Accounting

Financial Accounting

Financial And Managerial Accounting

Accounting

Foundations of Business (MindTap Course List)

Essentials of Business Communication (MindTap Course List)

Fundamentals of Financial Management (MindTap Course List)

Contemporary Marketing

Brief Principles of Macroeconomics (MindTap Course List)

Essentials of Economics (MindTap Course List)

Economics:

Principles of Economics (MindTap Course List)

ECON MICRO

Accounting Information Systems

ECON: MICRO4 (New, Engaging Titles from 4LTR Press)

MKTG 12:STUDENT ED.-TEXT

Management, Loose-Leaf Version

ECON MACRO

Principles of Macroeconomics (MindTap Course List)

Fundamentals of Financial Management, Concise Edition (MindTap Course List)

Principles of Microeconomics (MindTap Course List)

STATISTICS F/BUSINESS+ECONOMICS-TEXT

Financial Accounting

Financial & Managerial Accounting

College Accounting (Book Only): A Career Approach

College Accounting, Chapters 1-27 (New in Accounting from Heintz and Parry)

College Accounting (Book Only): A Career Approach

Accounting (Text Only)

Exploring Economics

Pkg Acc Infor Systems MS VISIO CD

Principles of Macroeconomics (MindTap Course List)

Statistics for Business & Economics, Revised (MindTap Course List)

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)

Fundamentals of Financial Management (MindTap Course List)

Corporate Financial Accounting

Survey of Accounting (Accounting I)

PAYROLL ACCT.,2019 ED.(LL)-TEXT

Bcom

Macroeconomics

Purchasing and Supply Chain Management

Economics For Today

Microeconomics

Economics (MindTap Course List)

Practical Management Science

Cornerstones of Cost Management (Cornerstones Series)