Question

Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2018, Super Rise obtains a contract to maintain an elevator in a 90-story building in New York City for 10 months and receives a fixed payment of $97,000. The contract specifies that Super Rise will receive an additional $48,500 at the end of the 10 months if there is no unexpected delay, stoppage, or accident during the year. Super Rise estimates variable consideration to be the most likely amount it will receive.

Required:
1. Assume that, because the building sees a constant flux of people throughout the day, Super Rise is allowed to access the elevators and related mechanical equipment only between 3am and 5am on any given day, which is insufficient to perform some of the more time-consuming repair work. As a result, Super Rise believes that unexpected delays are likely and that it will not earn the bonus. Prepare the journal entry Super Rise would record on January 1.
2. Assume instead that Super Rise knows at the inception of the contract that it will be given unlimited access to the elevators and related equipment each day, with the right to schedule repair sessions any time. When given these terms and conditions, Super Rise has never had any delays or accidents in the past. Prepare the journal entry Super Rise would record on January 31 to record one month of revenue.
3. Assume the same facts as requirement 1. In addition assume that, on May 31, Super Rise determines that it does not need to spend more than two hours on any given day to operate the elevator safely because the client’s elevator is relatively new. Therefore, Super Rise believes that unexpected delays are very unlikely. Prepare the journal entry Super Rise would record on May 31 to recognize May revenue and any necessary revision in its estimated bonus receivable.

Record any necessary entry on January 1.

Date	General Journal	Debit	Credit
January 01

Record any necessary entry on January 31 to record one month of revenue.

Date	General Journal	Debit	Credit
January 31

Record any necessary entry on May 31 to recognize May revenue and any necessary revision in its estimated bonus receivable.

Date	General Journal	Debit	Credit
May 31

Answer 1

Ans:

1. Record the Journal Entry to receipt of cash As Follows

Date	General Journal	Post Ref	Debit	Credit
Jan-01	Cash		$97,000
	Deferred Revenue			$97,000

                    (To record the receipt of cash)

No Journal Entry for unlikely receiving the Bonus

2. Record the Journal Entry for One Month of revenue as Follows

Date	General Journal	Post Ref	Debit	Credit
Jan-31	Deferred Revenue($97,000/10)		$9,700
	Bonus Receivable($48,500/10)		$4850
	Service Revenue			$14,550
	(To record one month of Revenue)

3. Record the Journal Entry to recognize May revenue and Necessary revision in its estimated Bonus receivable as follows

Date	General Journal	Post Ref	Debit	Credit
May-31	Deferred Revenue($97,000/10)		$9,700
	Service revenue			$9,700
	(To record the Revenue)

Date	General Journal	Post Ref	Debit	Credit
May-31	Bonus Receivable ($48,500/10*5)		$24,250
	Service revenue			$24,250
	(To record the Bonus Receivable)