Answer:
1. Possible prices (A) Prob. (B) Exp. consideration (A*B)
[($78,000*8m)+$26,000] $650,000 80% $520,000
[($78,000*8m)-$26,. 000] $598,000 20% <u>$119,600</u>
Expected value at contract inception <u>$639,600</u>
Date General Journal Debit Credit
Accounts Receivable $78,000
Bonus Receivable $1,950
Service Revenue $79,950
($639,000/8 months)
(To record the service revenue for the first four months)
2. Possible prices (A) Prob. (B) Exp. consideration (A*B)
[($78,000*8m)+$26,000] $650,000 60% $390,000
[($78,000*8m)-$26,. 000] $598,000 40% <u>$239,200</u>
Transaction price after four months <u>$629,200</u>
Date General Journal Debit Credit
Service Revenue $5,200
Bonus Receivable $5,200
([$629,200 - ($78,000*8 months)]
(To adjust the excess amount of bonus)
3. Date General Journal Debit Credit
Accounts Receivable $78,000
Bonus Receivable $650
Service Revenue $78,650
($629,200/8 months)
(To record the service revenue for the last four months)
4. Date General Journal Debit Credit
Cash $26,000
Bonus Receivable $5,200
Service Revenue $20,800
(To record the receipt of bonus)
