On January 2, 2017, TI entered into a contract with Drewry Corp, to build a new piece of equipment. The contract price is $3 million, and the construction is expected to take 18 months. Drewry is billed and pays $1,500,000 of the contract price on January 2, 2017, and will pay the balance at completion.

TI estimates that the cost of the construction will be $2.2 million. Drewry includes two performances bonuses in the contract: 1. U.S Bonus: If the equipment design receives a U.S. patent by March 15, 2018, Drewry will pay a $300,000 bonus. 2. International Bonus: If the equipment receives approval for international distribution by January 31, 2018, 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 80% chance it will receive U.S. patent protection by March 15, 2018, but only 30% chance that the equipment will be approved for international distribution.

TI received a U.S. patent on the equipment design on November 15, 2017, and immediately billed and received its bonus payments. On December 31, 2017, TI has incurred $1.760,000 of contract costs and is 80% complete. TI won approval for international distribution on January 15, 2018, and completed the equipment project on April 15, 2018, at a cost of $2,200,000.

Required:

Identify the performance obligation is the contract and provide the journal entries that TI should make to recognize revenue from the contract.

NOTE: On the date contract is entered into, TI would determine the transaction price to be $3,300,000 ($3,000,000 + the probable $300,000 U.S. bonus). The international bonus would not be included because it is not probable that is will be received.