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A company is evaluating a revenue arrangement to determine proper revenue recognition. The contract is for...

A company is evaluating a revenue arrangement to determine proper revenue recognition. The contract is for manufacturing 20 race cars. The customer needs the cars by May 1, 2021. The customer provides a bonus payment of $700,000 if all cars are delivered by the May 1 deadline. The bonus is reduced by a fourth of the total available bonus amount (i.e., reduced by $700,000 divided by 4) each week that the cars are delivered after the deadline until no bonus is paid if the cars are delivered after May 22nd, 2021. The company has good historical data for estimating the probabilities of completion at different dates. It estimates an equal probability (20%) for each full delivery outcome. How much should the company recognize as revenue related to this bonus?

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