Rocky Guide Service provides guided 1-5 day hiking tours throughout the Rocky Mo
ID: 2525596 • Letter: R
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 $2,900 per tour day, and shortly after the end of each month Rocky learns whether it will receive a $290 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 $2,900 per day and any bonus due are paid in one lump payment shortly after the end of each month. On July 1, based on prior experience, Rocky estimated that there is a 20% chance it will earn the bonus for July tours lt guided a . total of 10 days from July 1-July 15 to an 70% chance it would earn the bonus for July tours. Rocky also guided customers for 15 days from July 16-July 31, bonus for July, and received all payment due for the July tours. On July 16, based on Rocky's view that it had provided excellent service during the first part of the month, Rocky revised its estimate On August 5 Rocky learned that it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any Rocky bases estimates of variable consideration on the expected value it expects to receive. Required: 1. to 3. Prepare the journal entries to record the transactions above.(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)Explanation / Answer
Solution:
No
Date
General Journal
Debit ($)
Credit ($)
1
July 15
Accounts receivable
29,000
Bonus receivable
580
Service revenue
29,580
2
July 31
Accounts receivable
43,500
Bonus receivable
3,045
Service revenue
46,545
3
August 05
Cash
72,500
Accounts receivable
72,500
4
August 05
Service revenue
3,625
Bonus receivable
$3,625
Working notes:
1. The Company is paid $2,900 per day for 10 days which is due and bonus of 30%.
Accounts receivable = $ 2,900 x 10= $ 29,000
Bonus receivable= Bonus per day X Number of days X 20%
= $ 290 X 10 X 20%
=$ 580
2. The Company is paid $2,900 per day for 15 days which is due and bonus of 70%.
Accounts receivable = $ 2,900 x 15= $ 43,500
Bonus receivable= Bonus per day X Number of days X 20%
= $ 290 X 15 X 70%
=$ 3,045
3. Cash received =$ 29,000 + $ 43,500 =$ 72,500
4. As Rocky did not receive an average evaluation of “excellent” for its July tours, so it would not receive any bonus for July.
So, amount of bonus is cancelled= $ 580 + $ 3,045 = $ 3,625
No
Date
General Journal
Debit ($)
Credit ($)
1
July 15
Accounts receivable
29,000
Bonus receivable
580
Service revenue
29,580
2
July 31
Accounts receivable
43,500
Bonus receivable
3,045
Service revenue
46,545
3
August 05
Cash
72,500
Accounts receivable
72,500
4
August 05
Service revenue
3,625
Bonus receivable
$3,625
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