Question

Arctic Guide Service provides guided 1–5 day hiking tours throughout the Arctic Mountains. Jungle Tours hires Arctic to lead various tours that Jungle sells. Arctic receives $2,000 per tour day, and shortly after the end of each month Arctic learns whether it will receive a $200 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of “excellent” by Jungle customers. The $2,000 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, Arctic estimated that there is a 30% chance that it will earn the bonus for July tours. It guided a total of 8 days from July 1–July 15.
• On July 16, based on Arctic’s view that it had provided excellent service during the first part of the month, Arctic revised its estimate to an 80% chance it would earn the bonus for July tours. Arctic also guided customers for 12 days from July 16–July 31.
• On August 5 Arctic learned that 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.

Arctic bases estimates of variable consideration on the most likely amount it expects to receive.

Required:

1. Prepare Arctic’s July 15 journal entry to record revenue for tours given from July 1–July 15.
2. Prepare Arctic’s July 31 journal entry to record revenue for tours given from July 16–July 31.
3. Prepare Arctic’s August 5 journal entry to record any necessary adjustments to revenue and receipt of payment from Jungle.

Answer 1