Excerpt about revenue recognition taken from Tesla's 10K for the fiscal year that ended on December 31, 2019. Energy Generation and Storage Sales Energy generation and storage sales revenue consists of the sale of solar energy systems and energy storage systems to residential, small-commercial, large-commercial, and utility-grade customers. Sales of solar energy systems to residential and small-scale commercial customers consist of the engineering, design, and installation of the system. Post installation, residential and small-scale commercial customers receive a monitoring system/service that captures and displays historical energy generation data. Residential and small-scale commercial customers pay the full purchase price of the solar energy system upfront. Revenue for the design and installation obligation is recognized when control transfers, which is when we install the system. Revenue for the monitoring service is recognized ratably over the warranty period of the solar energy system. For large-commercial and utility-grade solar energy system and energy storage system sales, which consist of the engineering, design, and installation of the system, customers make milestone payments that are consistent with contract-specific phases of a project. Revenue from such contracts is recognized over time using the percentage of completion method based on cost incurred as a percentage of total estimated contract costs. In instances where there are multiple performance obligations in a single contract, we allocate the consideration to the various obligations in the contract based on the relative standalone selling price method. As part of our solar energy system and energy storage system contracts, we may provide the customer with performance guarantees that warrant that the underlying system will meet or exceed the minimum energy generation or retention requirements specified in the contract. In certain instances, we may receive a bonus payment if the system performs above a specified level. Conversely, if a solar energy system or energy storage system does not meet the performance guarantee requirements, we may be required to pay damages. These guarantees represent a form of variable consideration and are estimated at contract inception and are updated at the end of each reporting period as additional performance data becomes available. Such estimates are included in reported revenue only to the extent that it is probable a significant reversal of revenue will not occur. Q1) Suppose that on July 1, 2019, Tesla signed a contract with XYZ Co. in which Tesla agreed to design, construct and install a large-commercial solar energy system. The agreed upon price was $1,215,000 and the total estimated contract cost was $800,000. The customer will pay the contract price by making four "milestone" payments of $303,750. The first milestone payment was due on September 1,2019 . The subsequent milestone payments were due on November 1, 2019, January 1, 2020 and March 1, 2020. During the 2019 fiscal year, Tesla incurred costs of $600,000 and the customer made the first two milestone payments. How much revenue (for this contract) should Tesla recognize during the fiscal year that ended on December 31, 2019? (in dollars) The scenario for questions two and three is similar to the scenario described in question one. However, instead of agreeing on a fixed contract price, Tesla and XYZ agreed to the following performance-based schedule: XYZ will continue to make milestone payments of the same amounts and on the same dates as described in question three. However, once Tesla has finished installing the system, an engineering consultancy will assess the system's performance. If the assessed performance is deemed to be high, the customer will make an additional payment of $85,000. However, if the performance of the system is deemed to be medium (low), Tesla will reimburse the customer $115,000 ( $215,000 ). Q2) Suppose Tesla deems a revenue reversal of $100,000 or larger to be significant (i.e., material). On the date Tesla signed the contract, what was the variable consideration (for this contract) equal to? (dollars) Q3) Suppose that on December 31, 2019, Tesla has incurred costs of $600,000 and the customer had made the first two milestone payments. How much revenue (for this contract) should Tesla recognize during the fiscal year that ended on December 31, 2019? (dollars)