Answer:
1. Jan 31 Debit Cash $53,600
Credit Accounts receivable $53,600
2. June 30 Debit Cash $80,400
Credit Deferred Revenue $21,440
Credit Bonus Received $5,360
Credit Accounts Receivable $53,600
3. June 30 Debit Penalty Payable $26,800
Debit Cash $53,600
Credit Accounts Receivable $53,600
Credit Deferred Revenue $21,440
Credit Bonus adjustment $5,360
Explanation:
The question required that the month end revenue actually realized under the contract be journalized.
1.$53,600/- is a monthly payment which Revis will be receiving from Green Financial for every month for 6 months. Hence the receipt increases cash/bank balance and these are receivable under the contract. Hence accounts receivable is credited against the actual money received in the first month.
2.If cost saving targets are achieved by Revis, then apart from the monthly payment of $53,600/-, Green Financials has agreed to pay $26,800/- as bonus. Since the question states that Revis estimates that 80% it will reach the target, it would have accounted for the 80% as deferred revenue to be received. Hence 80% of $26,800/- is recorded under deferred revenue. Since now entire $26,800/- is received, the remaining 20% is shown as bonus received.
3.When the targets are not met, the deferred revenue recognized is reversed and penalty is paid. The difference of 20% is shown as bonus adjustment amount. The regular monthly income of $53,600/- is recognized as is.
