Estimate and constrain Cedar's inspection bonus

Cedar will receive fixed consideration of $200,000 for fabrication and can earn a $20,000 bonus if an independent inspector accepts the unit by June 30. There are only two bonus outcomes. Cedar estimates a 65 percent chance of acceptance. The inspector controls the final decision, and Cedar has little experience with this new specification. For this example, $8,000 of the bonus is stipulated as the amount that passes the constraint at contract inception.

The probability-weighted amount is $13,000: $20,000 multiplied by 65 percent. That amount illustrates the expected-value method. It is not the selected estimate here. Because the bonus has two outcomes and success is more likely, the supplied most-likely-amount method produces a $20,000 estimate under ASC 606-10-32-8.

Estimation and inclusion are separate. Outside inspection and Cedar's limited predictive experience increase reversal risk under 32-12. Under the exercise, $8,000 is included and $12,000 is constrained. Transaction price is therefore $208,000: fixed consideration of $200,000 plus the included bonus of $8,000.

This calculation proves those five amounts agree with the supplied inputs. It does not choose the estimation method, support the 65 percent likelihood, prove that $8,000 passes the constraint, allocate consideration, or recognize revenue. Cedar must update the estimate and constraint when circumstances change under 32-14.

Now complete the independent Summit analysis.