Question

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QUESTION 3 18 points Save Answer On January 1, 2019 Bob the Builder contracted with ITT, Corporation to complete some repairs and upgrades ITT agreed to pay Bob $15,500 a month for the 8 month contract. In order to provide an incentive to Bob, ITT offered a $20,000 bonus if Bob finishes the project 1 month early or a $10,000 bonus if Bob finishes the project 2 weeks early Payment of the bonus would occur on August 31, 2019. Bob estimates that there is a 35% chance that he could finish the project 1 month early and a 60% chance he could finish the project 2 weeks early Required: 1. Using the 5-step process, prepare the journal entry that Bob the Builder would record at the end of the month, January 31, 2019 2. Assume Bob finished the project 2 weeks early. Prepare the journal entry for the payment of the bonus on August 31, 2019 3. What is the total amount of revenue Bob the Builder would show in 2019 for this project?

Answer 1

1. Revenue for the month will be - 15500, bonus for completing work before one month - 7000 (20000*35%) per month 7000/8 = 875, bonus for completing work before 2 weeks - 6000 (10000*60%) per month 6000/8 = 750

Total revenue estimated in a month = 17125

Entry

ITT a/c Dr 17125

To Income from contract 17125

(Being debtor recorded for income earned in january)

2 Journal entry for payment of bonus

Bank a.c Dr 10000

To Income from contract 10000

(Being bonus income recorded)

3. Total revenue = 15500*8 = 124000

Bonus = 10000

Total reveune for 2019 134000