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 that 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.Rocky bases estimates of variable consideration on the expected value it expects to receive.Prepare Rocky's July 31 journal entry to record revenue for tours given from July 16 - July 31.

Answer 1

To record revenue for the tours given from July 16 - July 31, Rocky needs to calculate the expected revenue based on the estimated chances of earning the bonus for each day and make a journal entry. The journal entry would include Revenue of $13,000 and a Bonus Receivable of $2,030.

Step-by-step explanation:

On July 31, Rocky needs to record revenue for the tours given from July 16 - July 31. To do this, Rocky will need to calculate the expected revenue based on the estimated chances of earning the bonus for each day. The journal entry would look something like this:

Date | Account | Debit | Credit
July 31 | Revenue | $13,000 (10 days x $2,900 + 15 days x $2,900 x 70%) |
| Bonus Receivable | $2,030 (15 days x $290)