Problem 3

Since 1990, Raise the Roof has provided elevator maintenance servicing. On January 1, 2018, Raise the Roof obtains a contract to maintain an elevator in a 90-story building in San Francisco for 10 months and receives a fixed payment of $80,000 on January 1. The contract specifies that Raise the Roof will receive an additional $41,000 at the end of the 10 months if there are no elevator stoppages or accidents during the year. Raise the Roof estimates variable consideration to be the most likely amount it will receive.

Requirement 1:

Assume that Raise the Roof will be given unlimited access to the elevators for repairs and maintenance. With these conditions, Raise the Roof believes its chances of earning the bonus is 90%. Prepare the journal entry Raise the Roof would record on January 1 to record the receipt of cash and January 31 to record one month of revenue.

Requirement 2:

Assume instead that Raise the Roof will have access to the elevators only from 2:00 AM to 4:00 AM each day which is insufficient for more time consuming repairs and maintenance. As a result, Raise the Roof believes its chances of earning the bonus is only 20%. Prepare the journal entry Raise the Roof will record on January 31 to record one month of revenue.

Requirement 3:

Continuing with the same facts from Requirement 2, assume that on May 31, Raise the Roof determines that it does not need to spend more than 2 hours daily on maintenance and repairs. Therefore, Raise the Roof changes its estimate of the likelihood to receive the bonus to 85%. Prepare the journal entry Raise the Roof would record on May 31 to recognize May revenue and any necessary revision in its estimate bonus receivable.