Question

In: Accounting

Since 1990, Raise the Roof has provided elevator maintenance servicing. On January 1, 2018, Raise the...

Since 1990, Raise the Roof has provided elevator maintenance servicing. On January 1, 2018, Raise the Roof obtains a contract to maintain an elevator in a 90-story building in San Francisco for 10 months and receives a fixed payment of $80,000 on January 1. The contract specifies that Raise the Roof will receive an additional $41,000 at the end of the 10 months if there are no elevator stoppages or accidents during the year. Raise the Roof estimates variable consideration to be the most likely amount it will receive.

R 1: Assume that Raise the Roof will be given unlimited access to the elevators for repairs and maintenance. With these conditions, Raise the Roof believes its chances of earning the bonus is 90%. Prepare the journal entry Raise the Roof would record on January 1 to record the receipt of cash and January 31 to record one month of revenue.

R 2: Assume instead that Raise the Roof will have access to the elevators only from 2:00 AM to 4:00 AM each day which is insufficient for more time consuming repairs and maintenance. As a result, Raise the Roof believes its chances of earning the bonus is only 20%. Prepare the journal entry Raise the Roof will record on January 31 to record one month of revenue.

R 3: Continuing with the same facts from Requirement 2, assume that on May 31, Raise the Roof determines that it does not need to spend more than 2 hours daily on maintenance and repairs. Therefore, Raise the Roof changes its estimate of the likelihood to receive the bonus to 85%. Prepare the journal entry Raise the Roof would record on May 31 to recognize May revenue and any necessary revision in its estimate bonus receivable.

Solutions

Expert Solution

Raise the Roof Elevator Maintenance Servicing
Answer1. No Date Journal Entry Debit (in $) Credit (in $)
1 Jan-01 Cash A/C 80,000
      To Deferred Revenue A/C 80,000
Narration : Receipt of Cash
2 Jan-31 Deferred Revnue A/C ( $80,000 ÷ 10 ) 8,000
Bonus Receivable A/C ( $41,000 ÷ 10 ) × 90% 3,690
       To Service Revenue A/C 11,690
Narration : Record of Revenue & Bonus
Answer2. No Date Journal Entry Debit (in $) Credit (in $)
1 Jan-31 Deferred Revnue A/C ( $80,000 ÷ 10 ) 8,000
Bonus Receivable A/C ( $41,000 ÷ 10 ) × 20% 820
       To Service Revenue A/C 820
Narration : Record of Revenue & Bonus
Answer3. No Date Journal Entry Debit (in $) Credit (in $)
1 May-31 Deferred Revnue A/C ( $80,000 ÷ 10 ) 8,000
Bonus Receivable A/C ( $41,000 ÷ 10 × 5 ) × 85% 17,425
       To Service Revenue A/C 25,425
Narration : Record of Revenue for the month of
May & Bonus Receivable for the period
Jan 31 to May 31

If you liked the solution, do give a Positive Rating! In case of any doubt, feel free to write in the comment section below. Good Luck!


Related Solutions

Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super Rise obtains a contract to maintain an elevator in a 90-story building in New York City for 10 months and receives a fixed payment of $96,000. The contract specifies that Super Rise will receive an additional $48,000 at the end of the 10 months if there is no unexpected delay, stoppage, or accident during the year. At the beginning of the contract, Super Rise...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super Rise obtains a contract to maintain an elevator in a 90-story building in New York City for 10 months and receives a fixed payment of $97,000. The contract specifies that Super Rise will receive an additional $48,500 at the end of the 10 months if there is no unexpected delay, stoppage, or accident during the year. Super Rise estimates variable consideration to be the...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2021, Super...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2021, Super Rise obtains a contract to maintain an elevator in a 90-story building in New York City for 10 months and receives a fixed payment of $87,000. The contract specifies that Super Rise will receive an additional $43,500 at the end of the 10 months if there is no unexpected delay, stoppage, or accident during the year. Super Rise estimates variable consideration to be the...
Since 1970, Super Rise, Inc., has provided maintenance services for elevators.
Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2021, Super Rise obtains a contract to maintain an elevator in a 90-story building in New York City for 10 months and receives a fixed payment of $80,000. The contract specifies that Super Rise will receive an additional $40,000 at the end of the 10 months if there is no unexpected delay, stoppage, or accident during the year. Super Rise estimates variable consideration to be the...
The maintenance of arms has been crucial in state building and maintenance since the formation of...
The maintenance of arms has been crucial in state building and maintenance since the formation of nations. There has been a gradual shift over time in the primary function of arms from offensive to defensive. However, the spending of arms is at an all time high even though we are in a period of (relative) peace. This is likely to originate from the influence the Military Industrial Complex has on national and international politics. (Comment the paragraph in 100 words)
Has the Natural Rate of Unemployment fallen since the early 1990’s and if so,           Way?  ( Discuss in...
Has the Natural Rate of Unemployment fallen since the early 1990’s and if so,           Way?  ( Discuss in Detail)
The record of the LEI Corporation provided the full LEI Corporation Balance sheet January 1, 2018          ...
The record of the LEI Corporation provided the full LEI Corporation Balance sheet January 1, 2018           December 31, 2018 Cash                                                                            15,000                         31,000 Account Receivable                                                   30,000                         28,000 Allowance for doubtful Account                                (1,500)                        (2,000) Inventory                                                                     10,000                         15,000 Long term Investment                                                2,400                           1,400 Operational Assets                                                      80,000                         81,000 Accumulated Depreciation                                         (20,000)                      (16,000) Land                                                                            40,100                         81,100 Account Payables                                                       10,000                         11,000 Wages...
1. Jake’s Roof Repair has provided the following data concerning its costs: Fixed Cost per Month...
1. Jake’s Roof Repair has provided the following data concerning its costs: Fixed Cost per Month Cost per Repair-Hour Wages and salaries $ 21,000 $ 15.00 Parts and supplies $ 7.60 Equipment depreciation $ 2,710 $ 0.50 Truck operating expenses $ 5,750 $ 1.80 Rent $ 4,680 Administrative expenses $ 3,860 $ 0.70 For example, wages and salaries should be $21,000 plus $15.00 per repair-hour. The company expected to work 2,600 repair-hours in May, but actually worked 2,500 repair-hours. The...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face amount of $10 million. The bonds mature in 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. A. What was the issue price of the bonds? B. Prepare the journal entry to record the bond issuance. C. Prepare the journal entry to record interest on June 30, 2018,...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face...
On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face amount of $10 million. The bonds mature in 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. A. Prepare a partial balance sheet showing the bonds at December 31, assuming that Entity A had used the effective interest method from the inception. B. Why might a company utilize...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT