Question

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 $2,400 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $240 bonus per tour day it guided during the previous month if its service during that month received an average evaluation of "excellent" by Wilderness customers. The $2,400 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 that there is a 30% chance that 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 80% 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 that 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.
Rocky bases estimates of variable consideration on the expected value it expects to receive.
Required:
1. to 3.
Prepare the journal entries to record the transactions above. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)
1: Prepare Rocky's July 15 journal entry to record revenue for tours given from July 1 - July 15.
2: Prepare Rocky's July 31 journal entry to record revenue for tours given from July 16 - July 31.
3: Prepare Rocky's August 5 journal entry to record the receipt of payment from Wilderness.
4: Prepare Rocky's August 5 journal entry to record any necessary adjustments to revenue.

Answer 1

Answer: Please see below

Explanation:

1. Journal entry to record revenue from  tours from july 1 to july 15

Date                  Account                            Debit                Credit

15TH July  Account Receivable               $24,000

                     Service Revenue                                         $24,000

working:Revenue accrued from the 10 days tour ie from  July 1 to 15=   Revenues per day x Numner of days of tours= $2,400 x 10 =$24,000

2. journal entry to record revenue for tours given from July 16 - July 31

Date                  Account                            Debit                 Credit

31ST July  Account Receivable               $36,000

                  Bonus receivable                   $6,000

                    Service Revenue                                        $42,000

working:Revenue accrued from the 15 days tour ie from  July 16 to 31=   Revenues per day x Number of days of tours= $2,400 x 15=$36,000

Bonus from July= Bonus gotten each day x total days guided

=240 x (15 + 10 days) = 240 x 25= $6000

3 journal entry to record the receipt of payment from Wilderness on August 5

Date                  Account                            Debit                Credit

August 5         Cash                              $60,000

                     Account receivable                                     $60,000

working: Total account receivable = Amount  receivable from 1-15 july + Amount  receivable from 16-31 July

= $24,000 + $36,000= $60,000

4:  journal entry to record necessary adjustments to revenue. ie bonus that was expected to be received but no longer received

Date                  Account                            Debit            Credit

August                 Service Revenue       $6,000

                             Bonus revenue                                $6,000