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 $2,300 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $230 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 $2,300 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 that there is a 20% 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 70% 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 that 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: 1. to 3. Prepare the journal entries to record the transactions above.

Prepare Rocky's July 31 journal entry to record revenue for tours given from July 16 - July 31 and any adjustment needed for July 1 – July 15.

Prepare Rocky's August 5 journal entry to record the receipt of payment from Wilderness.

Prepare Rocky's August 5 journal entry to record any necessary adjustments to revenue.

Answer 1

No	Date	General Journal				Debit	Credit
1)	15-Jul	Accounts receivable				23000
		Service revenue					23000
2)	31-Jul	Accounts receivable				34500
		Bonus receivable				5750
		Service revenue					40250
3)	5-Aug	Cash				57500
		Accounts receivable					57500
4)	5-Aug	Service revenue				5750
		Bonus receivable					5750
Explanation:
1)	only revenue recognised for 10 days tour , no bonus recognised as chances
	are less than 50%
2)	revenue recognised for another 15 days , also bonus recognised for 25 days (10+15)
	as chances raised to 80%
3)	Basic revenue received
4)	Bonus entry reversed