Chapter 17, Problem 13E

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:

Required:

1. 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price?
2. 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price?
3. 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?