In: Accounting
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?
Analysis:
Determine the monthly transaction price that Jonas should use for recording the contract using the most likely amount approach.
Monthly transaction price $_______________
General Journal (3 Accounts):