Need help with questions C!

Journal Entry: c) repair operations
12/31/2020
Briefly describe the issue and explain how you decided to handle it. Also show how you calculated any values.

c. In addition to its personal watercraft products, WKI's management entered into a long-term agreement on October 1, 2020 to begin supplying repair parts, along with repair services, to a regional chain of marinas. The details of the agreement called for WKI to be paid $4,400,000 up front for a stock of repair parts and 2 years of repair services (beginning on the agreement date). The chain of marinas could have bought just the parts for $4,125,000, and they could have independently contracted for the repair services for $1,100,000 for the two-year period. WKI determines the sales price and directs the repair operations. The cost of the repair parts sold to the marina chain was $2,640,000. In addition, as part of the contract, WKI has negotiated a performance bonus if it is able to meet certain operating thresholds at the end of the contract. The bonus terms specify a payment of one of the following three amounts: a base payment for completing the contract of $150,000, or a second-tier amount of $300,000, or a top-tier payment of $500,000. WKI management estimates the following percentage likelihoods of achieving these bonus levels: base 30%, 2nd tier - 60%, top tier - 10%. WKI uses the expected value approach to determine the value of this variable consideration. WKI has determined the time value of money to be immaterial in this transaction. Note: WKI plans to use separate accounts in its G/L for the revenueand for any unearned revenue-for (1) repair parts, (2) repair services, and (3) repair bonus, but it plans to combine these three accounts together for reporting on the financial statements. WKI considers this repair business of its normal operations. Your predecessor recorded this as a point-of-sale transaction, with the services and bonus treated as free additions. c. In addition to its personal watercraft products, WKI's management entered into a long-term agreement on October 1, 2020 to begin supplying repair parts, along with repair services, to a regional chain of marinas. The details of the agreement called for WKI to be paid $4,400,000 up front for a stock of repair parts and 2 years of repair services (beginning on the agreement date). The chain of marinas could have bought just the parts for $4,125,000, and they could have independently contracted for the repair services for $1,100,000 for the two-year period. WKI determines the sales price and directs the repair operations. The cost of the repair parts sold to the marina chain was $2,640,000. In addition, as part of the contract, WKI has negotiated a performance bonus if it is able to meet certain operating thresholds at the end of the contract. The bonus terms specify a payment of one of the following three amounts: a base payment for completing the contract of $150,000, or a second-tier amount of $300,000, or a top-tier payment of $500,000. WKI management estimates the following percentage likelihoods of achieving these bonus levels: base 30%, 2nd tier - 60%, top tier - 10%. WKI uses the expected value approach to determine the value of this variable consideration. WKI has determined the time value of money to be immaterial in this transaction. Note: WKI plans to use separate accounts in its G/L for the revenueand for any unearned revenue-for (1) repair parts, (2) repair services, and (3) repair bonus, but it plans to combine these three accounts together for reporting on the financial statements. WKI considers this repair business of its normal operations. Your predecessor recorded this as a point-of-sale transaction, with the services and bonus treated as free additions