Variable Revenue:

On Jan 1, 20x1, Skinner Equipment company leased equipment used in mineral extraction operations to Erickson Corporation. The monthly base fee was $250,000. In addition, at the end of the year, Erickson must pay Skinner a bonus of one months rent ($250,000) if there were no equipment breakdowns during the year.

Skinner received the $750,000 due to it in each of the four quarters of 20x1.

There were no breakdowns during the first quarter. As of the end of the first quarter, Skinner estimated a 40% probability there would be no breakdowns during the rest of the year. There were also no breakdowns during the second quarter. As of the end of the second quarter, Skinner estimated a 90% probability there would be no breakdowns the remainder of the year. There was a breakdown during the third quarter, which removed the possibility of Skinner receiving a bonus.

Required:

Prepare the journal entries required to record all of the above activity in each of the four quarters of 20x1.

Subject is Financial Reporting and Analysis.