Answer:
a. Accounts Receivable (Dr.) $93,000
Bonus Receivable (Dr.) $2,325
Service Revenue (Cr.) $95,325
b. Service Revenue (Dr.) $9,300
Bonus receivable (Cr.) $9,300
c. Accounts Receivable (Dr.) $93,775
Bonus Receivable (Dr.) $775
Service Revenue (Cr.) $93,000
d. Cash (Dr.) $29,000
Bonus Receivable (Cr.) $29,000
Explanation:
The contract between Burger Boy and Velocity is for eight months.
Expected value of the contract on 1st month is :
80% * [ $93,000 * 8 months + $31,000 ] + 20% [ $93,000 * 8 months - $31,000] = $762,600
The expected value per month is $762,600 / 8 months = $95,325 per month
Expected value of the contract 5th month with revised probability is :
60% * [ $93,000 * 8 months + $31,000 ] + 40% [ $93,000 * 8 months - $31,000] = $750,200
The expected value per month is $750,200 / 8 months = $93,775 per month.
