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 $68,000 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $34,000 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $34,000 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.)

Answer 1

207 working notes: The contract requires 6 payments of $68,000, plus ou rrinces $34000 at the end of the contract. this contact give either [6*$68,000)+$34,000] = $ 449,000 Cool (6x $ 68,000)-$340007- $ 374,000 possible priceas probability Expected cousideration $442,000 | 80% $353.600 $ 374,000 $74,800 $ 428400 Expected value of contract price at inception is $ 428,400 Revis will gecoguise $428,400%6 = $71,400 g revende every month. Date particulars LF Debit credit cash ale Dr $34,000 TO Bouces receivable $ 20,400 (+3.400 x 6] TO service revenue $13,600 Dy $ 54,400 Service revenue Ale To Bouces receivable To cash $29400 $$ 34,000