Question

Rocky Guide Service provides guided 1–5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $2,800 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $280 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excellent" by Wilderness customers. The $2,800 per day and any bonus due are paid in one lump payment shortly after the end of each month.

• On July 1, based on prior experience, Rocky estimated there is a 40% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1–July 15.
• On July 16, based on Rocky’s view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 90% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16–July 31.
• On August 5 Rocky learned it did not receive an average evaluation of “excellent” for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours.

Rocky bases estimates of variable consideration on the expected value it expects to receive.

• Prepare Rocky's July 15 journal entry to record revenue for tours given from July 1 - July 15.

Note: Enter debits before credits.

	Date General Journal Debit Credit July 15 july 31 AUg 5 Aug 5

Answer 1

ANSWER

No	Date	General Journal		Debit	Credit
1)	15-Jul	Accounts receivable		28000
		Service revenue			28000
2)	31-Jul	Accounts receivable		42000
		Bonus receivable		7000
		Service revenue			49000
3)	5-Aug	Cash		70000
		Accounts receivable			70000
4)	5-Aug	Service revenue		7000
		Bonus receivable			7000
Explanation:
1)	only revenue recognized for 10 days tour , no bonus recognized as chances
	are less than 50%
2)	revenue recognized for another 15 days , also bonus recognized for 25 days (10+15)
	as chances raised to 80%
3)	Basic revenue received
4)	Bonus entry reversed

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