Therefore, when Velocity receives the cash bonus, it will recognize additional revenue of $17,600 ($22,000-$4,400). It already has recognized revenue of $4,400 associated with the bonus. Journal Entry to record revenue each month for the second four months of the contract is shown as follows:-Ĥ) At the end of contract, Velocity learns that it will receive the bonus of $22,000. Because the bonus receivable account was increased to $6,600 in the first four months, an adjustment of $4,400 ($6,600-$2,200) is needed to reduce the bonus receivable down to $2,200.ģ) As services are provided evenly over eight months, Velocity would recognize revenue of $66,550 ($532,400/8 months) in each of the fifth to eighth month. This java example shows how to create a custom color using red, green and blue (RGB) components in an Applet window using Java AWT Color class. After four months, the estimated likelihood of receiving the bonus is revised so the estimated transaction price decreases: Possible Prices (A)Īfter four months, the bonus receivable account should have a balance of $2,200, which is half of the new expected value of the bonus of $4,400. Journal Entries (Amounts in $) Account TitlesĢ) By the end of the fourth month, the bonus receivable account would have a balance of $6,600 ($1,650*4). ![]() ![]() The journal entry to record revenue each month for the first four months of the contract is shown as follows:. Because Velocity is guaranteed to receive only $66,000 per month, it will recognize a bonus receivable of $1,650 each month ($67,650-$66,000) to reflect the expected value of bonus amount to be received at the end of the contract. (f no entry is required for a transaction/event, select "No Journal entry required" in the first account field.) esġ) The contract inception, the expected value of the two possible eventual prices is calculated below Possible Prices (A)Īs consulting services are provided evenly over the eight months, velocity will recognize revenue of $67,650 ($541,200/8 months). Prepare the journal entries related to the contract. At the end of the contract, Velocity receives the additional consideration of $22,000. After four months, circumstances change, and Velocity revises to 60% its estimate of the probability that it wil earn the bonus. At the inception of the contract, Velocity estimates an 80% chance that it will earn the $22,000 bonus and calculates the contract price based on the expected value of future payments to be received. At the end of the contract, Velocity either will give Burger Boy a refund of $22,000 or will be entitled to an additional $22,000 bonus, depending on whether sales at Burger Boy at year-end have increased to a target level. The Color class is a part of Java Abstract Window Toolkit (AWT) package. ![]() Burger Boy promises to pay $66,000 at the beginning of each month. Velocity, a consulting firm, enters into a contract to help Burger Boy, a fast-food restaurant, design a marketing strategy to compete with Burger King.
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