ENVY unctions to Portelli. The contract specifies the payments are to be made sh

Question

ENVY unctions to Portelli. The contract specifies the payments are to be made shortly after the end of each quarter. It pecities that Portelli will receive an additional quarterly bonus of $4,500 if, during that quarter, Silvia 29) Portelli Services provides room- cleaning arrangements for hotels in Pennsylvania. On April 1, Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning f rvice fee to be $20,000 per month, and all no more than f receives ive complaints from customers about room cleanliness. (12 points) . On April 1, quarterly bonus. . On May 5, Portelli learned that during April, there were two complaints from cleanliness Based on this new ,nformation Portelli revised its estimate down quarterly bonus. based on historical experience Portelli estimated that there is a 75% chance that it will earn the customers related to room ward to 60% that it would earn the ith On June 30, Silvia notified Portelli that, for the quarter ended, there were four complaints associated w room cleanliness, so Portelli would receive the bonus. Two days later, Portelli received all payments due for al services rendered in the second quarter, including the bonus Portelli bases estimates of variable consideration on the expected value it expects to receive. (a) Prepare Portelli's April 30 journal entry to account for the revenue earned in April (b) Prepare Portelli's May 31 journal entry to record the revenue earned in May, as well as any appropriate adjustments to the revenue earned in April (c) Prepare Portelli's June 30 and July 2 journal entries to record additional service revenue earned, as well as any necessary adjustments to revenue and receipt of payment from Silvia.

Explanation / Answer

Solution:

a) Preparing the Portelli's April 30 Journal Entry to Account for the Revenue Earned in April:

Bonus Receivable ($4,500 / 3 = $1,500)

($1,500 * 75%)

b) Preparing the Romano’s May 30 journal entry to record the revenue earned in May, as well as any appropriate adjustments to the revenue earned in April:

c) Preparing Romano’s June 30 and July 2 journal entries to record additional service revenue earned, as well as any necessary adjustments to revenue and receipt of payment from Silvia:

Date Account Title and Explanation Debit Credit April 30 Accounts Receivable $20,000

Bonus Receivable ($4,500 / 3 = $1,500)

($1,500 * 75%)

$1,125 Service Revenue $21,125 (To Record the Revenue Earned but Due)

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