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 $36.800 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $18.400 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $18.400 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.) Journal entry worksheet Record the collection of cash and recognition of the first month's revenue Note: Enter debit before credit Date General Journal Debit Credit nuary 31 Journal entry worksheet Record the receipt of the bonus assuming total cost savings exceed target. Note: Enter debts before credits General Journal Debit Credit Date June 30 View transaction list Journal entry worksheet Record the payment of penalty assuming that total cost savings fall short of target. Note: Enter debe before credits General Journal Debit Credit Date June 30

Answer 1

Possible Price	Possibility	Expected Amount
239,200.00	80%	191,360.00
202,400.00	20%	40,480.00
Expected value		231,840.00

1)

	Debit	Credit
Cash	36,800.00
Bonus receivable	1,840.00
Service revenue		38,640.00

2)

	Debit	Credit
Cash	18,400.00
Bonus receivable		11,040.00
Service revenue		7,360.00

3)

	Debit	Credit
Service revenue	29,440.00
Bonus receivable		11,040.00
Cash		18,400.00