Jonas Consulting enters into a contract to provide cost management consulting se

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. 2. Next Level What is the objective of determining the transaction price based on the amount of variable consideration?

Determine the monthly transaction price that Jonas should use for recording the contract using the most likely amount approach.

Monthly transaction price $___________

Prepare the journal entry on January 31 to record the first month of the contract using the most likely amount approach.

Explanation / Answer

1) Customer Account Debit $10,000

To Revenue Account Credit $10,000

Variable Billing

{(24,000*80%)-(24,000*20%)}/12 = $1,200 + $10,000 = $11,200 per month

2) Customer Account Debit $11,200

To Revenue Account Credit $11,200

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.