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Anarel [89]
3 years ago
13

On January 1 Revis Consulting enters into a contract to complete a cost reduction program for Green Financial over a six-month p

eriod. Green will pay Revis $20,000 at the end of each month. If total cost savings reach a specific target, Green will pay an additional $10,000 to Revis at the end of the contract, but if total cost savings fall short, Revis will refund $10,000 to Green. Revis estimates an 80% chance that cost savings will reach the target and calculates the contract price based on the probability-weighted amounts of future payments to be received. Revis accounts for this arrangement.
Prepare the following journal entries for Revis:

1. The journal entry on January 31 to record the first month of revenue under the contract.

2. Assuming total cost savings exceed target, the journal entry on June 30 to record receipt of the bonus.

3. Assuming total cost savings fall short of target, the journal entry on June 30 to record payment of the penalty
Business
1 answer:
ipn [44]3 years ago
8 0

Answer:

Explanation:

1. The journal entry on January 31 to record the first month of revenue under the contract.

Dr Cash 20,000

Dr Bonus receivables 1000

    Cr Service revenue 21,000

How to calculate service revenue:

Total savings if the target is achieved = Monthly receipts * period + additional revenue = 20,000*6 + 10,000 = 130,000

Total revenue if the target is not achieved = Monthly receipts * period - additional revenue = 120,000 - 10,000 = 110,000

Monthly revenue = (130,000*0.80 + 110,000*0.20)/6 = 126,000/6 = 21,000

2. Assuming total cost savings exceed target, the journal entry on June 30 to record receipt of the bonus.

Dr Cash 10,000

    Cr Bonus receivables 6,000

    Cr Service revenue 4,000

How to calculate bonus receivables:

Bonus receivables= monthly bonus receivables * period = 1000*6 = 6,000

3.Assuming total cost savings fall short of target, the journal entry on June 30 to record payment of the penalty.

Dr Service revenue 16,000

    Cr Bonus receivables 6,000

    Cr Cash 10,000

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Answer:

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Explanation:

Basically, aggregate demand can suffer two types of movements: displacements or changes in the slope. We are assuming a straight slope, but we could well analyze the case of an aggregate demand that is not straight.

DISPLACEMENTS

They are produced by changes in autonomous consumption.  Changes in autonomous consumption may be due to changes in:

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7 0
3 years ago
Read 2 more answers
1) Suppose that papers for a newspaper stand cost $0.40 and sell for $0.80. They currently have no salvage value. If the stand o
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Answer:

C) .07

Explanation:

Current cost of newspaper = C

                                             = $0.40 / units

Current price of newspaper = P

                                               = $0.80 / UNIT

Current salvage value = S = 0

Cost of under ordering = Cu

                                       = P – C

                                       = $40

Cost of over ordering = C – S

                                    = $0.40

Critical ratio = Cu/ ( Cu + Co )

                    = 0.4 / ( 0.4 + 0.4)

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Since critical ratio defines the probability of optimum demand ,

We can consider service level ( %) = Critical ratio x 100  

Current service level = 50 %

When the salvage value = $0.1 ,

Cost of under ordering = Cu

                                       = P – C

                                       = $40

Cost of over ordering = C – S

                                    = $0.40 - $0.1

                                    = $0.30

Critical ratio = Cu/ ( Cu + Co )

                     = 0.4 / ( 0.4 + 0.3)

                     = 0.4/0. 7

                     = 0.5714

The revised service level = 0.5714 x 100 = 57.14 %

Therefore, The increase in service level is 0.07.

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