Question
On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month period. Revis will receive
On January 1, Revis Consulting entered into a contract to complete a cost reduction program for Green Financial over a six-month period. Revis will receive $68,000 from Green at the end of each month. If total cost savings reach a specific target, Revis will receive an additional $34,000 from Green at the end of the contract, but if total cost savings fall short, Revis will refund $34,000 to Green. Revis estimates an 80% chance that cost savings will reach the target and calculates the contract price based on the expected value of future payments to be received.
Required:
Prepare the following journal entries for Revis:
- Prepare the journal entry on January 31 to record the collection of cash and recognition of the first months revenue.
- Assuming total cost savings exceed target, prepare the journal entry on June 30 to record receipt of the bonus.
- Assuming total cost savings fall short of target, prepare the journal entry on June 30 to record payment of the penalty.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field.
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