Question

Since 1970, Super Rise, Inc., has provided maintenance services for elevators. On January 1, 2021, 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 $80,000. The contract specifies that Super Rise will receive an additional $40,000 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 Super Rise anticipates it will earn the performance bonus, but is highly uncertain about its estimate given unfamiliarity with the building and uncertainty about its access to the elevators and related equipment. Prepare the journal entry Super Rise would record on January 1. 2. Assume the same facts as requirement 1. In addition assume that, on May 31, Super Rise determines that it has sufficient experience with the company to make an accurate estimate of the likelihood that it will earn the performance bonus, and concludes that it is likely to earn the performance bonus. Prepare the journal entry Super Rise would record on May 31 to recognize May revenue and any necessary revision in its estimated bonus receivable.

Answer 1

IN THE BOOKS OF SUPER RISE INC.

DATE	PARTICULAR	DEBIT [$]	CREDIT [$]
PART A
1 JAN	Cash a/c dr To Deferred Revenue a/c [Being Cash Received]	80,000	80,000
PART B
31 MAY	Deferred revenue a/c dr To Service revenue a/c [Being revenue recognized] [80,000/10]	8,000	8,000
31 MAY	Bonus receivable a/c dr To Service Revenue a/c [Being bonus receivable recorded] [40000/10]	4,000	4,000