On March 1, 2020 ,LeMar enters into a new contract to build a specialized warehouse for $10 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, 2020, LeMar will receive a bonus of $700,000. For every week after November 30 that the warehouse is not usable, there will be a penalty by $175,000. The contract also includes that if the warehouse passes the quality inspection, LeMar will be paid $2 million extra. Historical performance of LeMar indicates that the probability for the firm to pass the quality inspection for the warehouse is 94%. LeMar provides the following completion schedule with the relevant probabilities:

Expected Completion Date Probability

November 30, 2020 60%

December 7, 2020 20%

December 14, 2020 10%

December 21, 2020 5%

December 28, 2020 5%

Required 1. Please make your variable consideration calculation by assuming that LeMar uses the Expected Value Approach to calculate the variable consideration.

2. What amount should LeMar use as the transaction price for its revenue recognition?