Rocky Guide Service provides guided 1 to 5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $2,600 per tour day, and shortly after the end of each month, Rocky learns whether it will receive a $260 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 $2,600 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 there is a 20% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1 to 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 all July tours. Rocky also guided customers for 15 days from July 16 to July 31. On August 5, Rocky learned it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours. Rocky bases estimates of variable consideration on the most likely amount it expects to receive. Required: Prepare Rocky's July 15 journal entry to record revenue for tours given from July 1-July 15. Prepare Rocky's July 31 journal entry to record revenue for tours given from July 16-July 31. Prepare Rocky's August 5 journal entry to record any necessary adjustments to revenue and receipt of payment from Wilderness.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter17: Advanced Issues In Revenue Recognition

Section: Chapter Questions

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Rocky Guide Service provides guided 1 to 5 day hiking tours throughout the Rocky Mountains. Wilderness Tours hires Rocky to lead various tours that Wilderness sells. Rocky receives $2,600 per tour day, and shortly after the end of each month, Rocky learns whether it will receive a $260 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 $2,600 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 there is a 20% chance it will earn the bonus for July tours. It guided a total of 10 days from July 1 to 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 all July tours. Rocky also guided customers for 15 days from July 16 to July 31.
On August 5, Rocky learned it did not receive an average evaluation of "excellent" for its July tours, so it would not receive any bonus for July, and received all payment due for the July tours.

Rocky bases estimates of variable consideration on the most likely amount it expects to receive.

Required:

Prepare Rocky's July 15 journal entry to record revenue for tours given from July 1-July 15.
Prepare Rocky's July 31 journal entry to record revenue for tours given from July 16-July 31.
Prepare Rocky's August 5 journal entry to record any necessary adjustments to revenue and receipt of payment from Wilderness.

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