value 2.50 points Velocity, a consulting firm, enters into a contract to help Bu

Question

value 2.50 points Velocity, a consulting firm, enters into a contract to help Burger Boy, a fast-food restaurant, design a marketing strategy to compete with Burger King. The contract spans eight months. Burger Boy promises to pay $45,000 at the beginning of each month. At the end of the contract, Velocity either will give Burger Boy a refund of $15,000 or will be entitled to an additional $15,000 bonus, depending on whether sales at Burger Boy at year-end have increased to a target level. At the inception of the contract, Velocity estimates an 80% chance that it will earn the $15,000 bonus and calculates the contract price based on the expected value of future payments to be received. After four months, circumstances change, and Velocity revises to 60% its estimate of the probability that t wll earn the bonus. At the end of the contract, Velocity receives the additional consideration of $15,000. Required: 1.to 4 Prepare the journal entries related to the contract. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) No Transaction General Journal Debit Credit Cash Bonus receivable

Explanation / Answer

Journal Entry Date Particulars Dr. Amt. Cr. Amt. 1 Accounts Receivable            45,000.00 Bonus Receivable              1,125.00    Service Revenue              46,125.00 Possible Revenues Probabilities Expected Consideration ($45,000 x 8 Months) + $15,000 80%            300,000.00 ($45,000 x 8 Months) - $15,000 20%              69,000.00 Total            369,000.00 Revenue Recognized = $369,600 / 8 Months = $46,125 2 Service Revenue              3,000.00    Bonus Receivable                 3,000.00 Possible Revenues Probabilities Expected Consideration ($45,000 x 8 Months) + $15,000 60%            225,000.00 ($45,000 x 8 Months) - $15,000 40%            138,000.00 Total            363,000.00 Revenue Recognized = $363,000 / 8 Months = $45,375 Bonus Reversed = $1125 X 4 - $375 X 4 Bonus Reversed = $3,000 3 Accounts Receivable            45,000.00 Bonus Receivable                  375.00    Service Revenue              45,375.00 4 Cash            15,000.00    Bonus Receivable                 3,000.00    Service Revenue              12,000.00

Related Questions

Navigate

• Browse (All)
• Browse V
• Subjects

---

---

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