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 $1,900 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $190 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 $1,900 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.

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

2.) Prepare Rocky's July 31 journal entry to record revenue for tours given from July 16 - July 31 and any adjustment needed for July 1 – July 15

3.) Prepare Rocky's August 5 journal entry to record the receipt of payment from Wilderness

4.) Prepare Rocky's August 5 journal entry to record any necessary adjustments to revenue

Answer 1

	Date	Particulars	Debit ($)	Credit ($)
1	July 15	Accounts receivable	19,000
		Service revenue (1900*10)		19,000
		(To record service revenue)
2	July 31`	Accounts receivable (1900*15)	28,500
		Bonus receivable	4750
		Service revenue		33,250
3	Aug 05	Cash (19000+28500)	47,500
		Accounts receivable		47,500
4	Aug 05	Service revenue	4750
		Bonus receivable		4750

Notes

1. Using the most likely approach as bonus chance is less than 50%, it should be recognized in July 15

2. The chance is more than 50%. SO it should be recognized.

Bonus receivable = 190* (10+15) = 4750

3. Since, the chance is now zero to receive bonus, the entry made before shall be reversed

Kindly upvote