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 $1,600 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $160 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 $1,600 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 there is a 40% chance 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 90% 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 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:
Prepare the journal entries to record the transactions above.

Answer 1

Answer:

Please find the complete question in the attached file.

Explanation:

Rocky believed there would be a $30\%$ possibility of a July bonus for touring, i.e $< 50\%$, from July 1-July 15 (10 days)-. Therefore no bonus can be calculated as $\ 2,400$ / day trip \times 10 days =$\ 2,400$ throughout this duration.

The expected 15-day revenues from 16th July – 31st July may well be calculated as $\ 2,400 \times 15 \ days = \ 36.000.$ Rocky calculated that it would get the bonus $80\%$ of the time. Estimates a $\ 240/day\ bonus \times (10\ days + 15\ days) = \ 6,000$