Question

On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month period. Revis will receive $53,600 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $26,800 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $26,800 to Green. Revis estimates an 80% chance that cost savings will reach the target and calculates the contract price based on the expected value of future payments to be received.

Required:
Prepare the following journal entries for Revis:

1. to 3. Prepare the journal entry on January 31 to record the collection of cash and recognition of the first month’s revenue. Also record the entry on June 30 for receipt of the bonus assuming total cost savings exceed target. And record the entry on June 30 for payment of the penalty assuming total cost savings fall short of target. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

• Record the collection of cash and recognition of the first month's revenue.

	Date General Journal Debit Credit January 31

• Record the receipt of the bonus assuming total cost savings exceed target.

	Date General Journal Debit Credit June 30

• Record the payment of penalty assuming that total cost savings fall short of target.

	Date General Journal Debit Credit June 30

Answer 1