Jonas Consulting enters into a contract to provide cost management consulting se
ID: 2417283 • Letter: J
Question
Jonas Consulting enters into a contract to provide cost management consulting services over a one-year period for $10,000 per month on January 1. At the end of the contract, Jonas will either give the customer a $24,000 refund or be entitled to an additional $24,000, depending on the level of cost savings. The company believes there is an 80% chance that it will be entitled to an additional $24,000 and a 20% chance it will give a refund of $24,000. In addition, Jonas believes it is probable that a significant reversal of any previously recognized revenue will not occur. The contract performance is determined to be satisfied over time.
Required: 1. Determine the monthly transaction price that Jonas should use for recording the contract and prepare Jonas’s journal entry at the end of the first month of the contract using the most likely amount approach.
Explanation / Answer
31 Jan Cash Dr $10000
Revenue EarnedCr $10000
Account Receivable $1200
Deferred Revenue $1200
Monthly trasaction price that he will receive $24000 is 80%=$19200/12= $1600
Monthly trasaction price that he will receive $24000 is 20%=$4800/12= $400
Net affect= $1200 which will be the deferred revenue per month
onas believes it is probable that a significant reversal of any previously recognized revenue will not occur
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.