Question

	Romano Services provides room-cleaning arrangements for hotels. On April 1, Swanky Hotels & Resorts signed an agreement to outsource its room cleaning functions to Romano. The contract specifies the service fee to be $45,000 per month, and all payments are to be made shortly after the end of each quarter. It also specifies that Romano will receive an additional quarterly bonus of $6,000, if during that quarter, Swanky receives no more than five complaints from customers about room cleanliness.
		On April 1, based on historical experience, Romano estimated that there is a 75% chance that it will earn the quarterly bonus.
		On May 5, Romano learned that, during March, there were two complaints from customers related to room cleanliness. Based on this new information, Romano revised its estimate downward to 40% that it would earn the quarterly bonus.
		On June 30, Swanky notified Romano that, for the quarter ended, there were four complaints associated with room cleanliness, so Romano would receive the bonus. Two days later, Romano received all payments due for all services rendered in the second quarter, including the bonus
	Romano estimates any variable consideration on the expected value of the consideration it expects to receive. Prepare the required journal entry for Romano Services on April 30th, May 30th, and June 30th

Answer 1

a
Total Bonus	$        3,000
Monthly Bonus(3000/3)	$        1,000
Bonus Amount	Probability	Expected Amount
$                                         1,000	75%	$                          750
$                                                -	25%	$                             -
Expected Bonus on 30th April		$                          750

Date	Account Description	Debit	Credit
30-Apr	Accounts Receivable	$ 15,000
	Bonus Receivable	$        750
	Service revenue		$        15,750
	(Being Revenue Recorded)

b
Two Month Bonus(1000*2)	$        2,000
Bonus Amount	Probability	Expected Amount
$                                         2,000	40%	$                          800
$                                                -	60%	$                             -
Expected Bonus on 30th May		$                          800

Date	Account Description	Debit	Credit
30-May	Accounts Receivable	$ 15,000
	Bonus Receivable(800-750)	$          50
	Service revenue		$        15,050
	(Being Revenue Recorded)

c.

Date	Account Description	Debit	Credit
30-Jun	Accounts Receivable	$ 15,000
	Bonus Receivable(3000-800)	$    2,200
	Service revenue		$        17,200
	(Being Revenue Recorded)
2-Jul	Cash	$ 48,000
	Accounts Receivable		$        45,000
	Bonus Receivable		$          3,000
	(Being Cash received on account)

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