However, instead of agreeing on a fixed contract price, Tesla and XYZ agreed to the following performance-based schedule:

System Performance Total Contract Price Probability

High $1,300,000 60%

Medium $1,100,000 35%

Low $1,000,000 5%

XYZ will continue to make milestone payments of the same amounts and on the same dates as described in question two. 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).

1.Suppose Tesla deems a revenue reversal of $100,000 or larger to be significant (i.e., material).

On the date Tesla signed the contact, what was the variable consideration (for this contract) equal to?

2.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?