Question

journal entries for 1 and 2

Exercise 6-10 (Algo) Variable consideration - most likely amount; change in estimate (L06-3, 6-6) Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $1.400 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $140 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excelent" by Wilderness customers. The $1,400 per day and any bonus due are paid in one lump payment shortly after the end of each month. . On July 1, based on prior experience, Rocky estimated there is a 20% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1-July 15. . On July 16, based on Rocky's view that it had provided excellent service during the first part of the month, Rocky revised its estimate to an 70% chance it would earn the bonus for July tours, Rocky also guided customers for 15 days from July 16- July 31 . On August 5 Rocky learned it did not receive an average evaluation of excellent for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours rences Rocky bases estimates of variable consideration on the most likely amount it expects to receive Required: 1. to 3. Prepare the journal entries to record the transactions above. If ne entry is required for a transaction/event, select "No journal entry required in the first account field.)

Answer 1

Solution During the July 1 - July 15 perlod, Rocky estimates a less than 50% chance it will earn the bonus, so using the most ukely ansunt approach, It assumes no bonus and estimates ite revenue as 1400 per day x 10 days = 14000. Date General Journal Debit Credit Accounts receivable 14000 Service revenue 14000 2 During July 16 - July 31 period, Rocky earry guide revenue of another 15 days X 1400 per day = 21000. In addition, because Rocky estimates a greater than 50 % chance it will earn the bonus, using the most likely amount approach, it este mater a bonus receivable of 140 per day x (10 days + is days) - 3500 Date T General Journal Debit Gredit Tuly 31 21000 Accounts receivable Bonus receivable 3500 Survice revenue 24500