Portelli Services provides room-cleaning arrangements for hotels in Pennsylvania. On April 1, Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning functions to Portelli. The contract specifies the service fee to be $15,000 per month, and all payments are to be made shortly after the end of each quarter. It also specifies that Portelli will receive an additional quarterly bonus of $3,000 if, during that quarter, Silvia receives no more than five complaints from customers about room cleanliness. . . . On April 1, based on historical experience, Portelli estimated that there is a 75% chance that it will earn the quarterly bonus. On May 5, Portelli learned that, during March, there were two complaints from customers rel ated to room cleanliness. Based on this new information, Portelli revised its estimate downw ard to 40% that it would earn the quarterly bonus. On June 30, Silvia notified Portelli that, for the quarter ended, there were four complaints ass ociated with room cleanliness, so Portelli would receive the bonus. Two days later, Portelli re ceived all payments due for all services rendered in the second quarter, including the bonus.
Portelli Services provides room-cleaning arrangements for hotels in Pennsylvania. On April 1, Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning functions to Portelli. The contract specifies the service fee to be $15,000 per month, and all payments are to be made shortly after the end of each quarter. It also specifies that Portelli will receive an additional quarterly bonus of $3,000 if, during that quarter, Silvia receives no more than five complaints from customers about room cleanliness. . . . On April 1, based on historical experience, Portelli estimated that there is a 75% chance that it will earn the quarterly bonus. On May 5, Portelli learned that, during March, there were two complaints from customers rel ated to room cleanliness. Based on this new information, Portelli revised its estimate downw ard to 40% that it would earn the quarterly bonus. On June 30, Silvia notified Portelli that, for the quarter ended, there were four complaints ass ociated with room cleanliness, so Portelli would receive the bonus. Two days later, Portelli re ceived all payments due for all services rendered in the second quarter, including the bonus.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Portelli Services provides room-cleaning arrangements for hotels in Pennsylvania. On April 1,
Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning functions to Portelli.
The contract specifies the service fee to be $15,000 per month, and all payments are to be made
shortly after the end of each quarter. It also specifies that Portelli will receive an additional
quarterly bonus of $3,000 if, during that quarter, Silvia receives no more than five complaints
from customers about room cleanliness.
.
.
On April 1, based on historical experience, Portelli estimated that there is a 75% chance that
it will earn the quarterly bonus.
On May 5, Portelli learned that, during March, there were two complaints from customers rel
ated to room cleanliness. Based on this new information, Portelli revised its estimate downw
ard to 40% that it would earn the quarterly bonus.
On June 30, Silvia notified Portelli that, for the quarter ended, there were four complaints ass
ociated with room cleanliness, so Portelli would receive the bonus. Two days later, Portelli re
ceived all payments due for all services rendered in the second quarter, including the bonus.
Portelli bases estimates of variable consideration on the most likely amount it expects to receive.
Prepare Portelli's April 30 journal entry to account for the revenue earned in April.
Prepare Portelli's May 31 journal entry to record the revenue earned in May, as well as
any appropriate adjustments to the revenue earned in April.
Prepare Portelli's June 30 and July 2 journal entries to record additional service revenue
earned, as well as any necessary adjustments to revenue and receipt of payment from Silvia.
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