On March 1, 2024, Leo Consulting enters into a contract with Highgate University to restructure Highgate's processes for purchasing goods from suppliers. The contract states that Leo will earn a fixed fee of $26,000 and work is completed as of March 31, 2024. If Highgate achieves $50,000 of cost savings within six months of the contract, Leo will be paid an additional $5,000. Leo estimates a 65% chance that Highgate will achieve the cost savings target. Assuming that Leo determines the transaction price as the expected value of expected consideration. On September 30, Highgate University is paid the $5,000 bonus. Required: Provide the journal entries for March 31, 2024 and September 30, 2024.
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- On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?Jonas Consulting enters into a contract to provide cost management consulting services over a 1-year period for $10,000 per month. At the end of the contract, Jonas will either give the customer a $24,000 refund or be entitled to an additional $24,000, depending on the level of cost savings. The company believes there is an 80% chance that it will be entitled to an additional $24,000 and a 20% chance it will give a refund of $24,000. In addition, Jonas believes it is probable that a significant reversal of any previously recognized revenue will not occur. The contract performance is determined to be satisfied over time. Required: 1. Determine the monthly transaction price that Jonas should use for recording the contract and prepare Jonas’s journal entry at the end of the first month of the contract using the most likely amount approach.On July 1 Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $30.000 at the end of each month, and, if total cost savings reach a specific target. PU will pay an additional $25,000 to Wiggins at the end of the contract Wiggins estimates a 80% chance that cost savings will reach the target Assume that Wiggins estimates uncertain consideration as the most likely amount. Required: Do the following for Wiggins a. Prepare the journal entry on July 31 to record the first month of revenue under the contract b. Assuming total cost savings exceed the target, prepare the journal entry, if any, on October 31 to record receipt of the $25,000 bonus ignore the normal October payment of $30.0001 c. Assuming total cost savings do not reach the target, prepare the journal entry, if…
- On July 1, Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $43,000 at the end of each month, and, if total cost savings reach a specific target, PU will pay an additional $38,000 to Wiggins at the end of the contract. Wiggins estimates a 80% chance that cost savings will reach the target. Assume that Wiggins estimates uncertain consideration as the most likely amount. Required: Do the following for Wiggins: a. Prepare the journal entry on July 31 to record the first month of revenue under the contract. b. Assuming total cost savings exceed the target, prepare the journal entry, if any, on October 31 to record receipt of the $38,000 bonus (ignore the normal October payment of $43,000). c. Assuming total cost savings do not reach the target, prepare the journal…Ivanhoe Company sells goods on credit that cost $309,500 to Michael Company for $415,500 on January 2, 2025. The sales price includes an installation fee, which has a standalone selling price of $45,500. The standalone selling price of the goods is $370,000. The installation is considered a separate performance obligation and is expected to take 6 months to complete. Ivanhoe prepares an income statement for the first quarter of 2025, ending on March 31, 2025 (installation was completed on June 18, 2025). How much revenue should Ivanhoe recognize related to its sale to Michael? First Quarter Sales revenue $enter a dollar amount Cost of goods sold enter a dollar amount Gross profitOn June 1, 2021, Consulting Inc. enters into a contract with a customer to build a website for its start-up business for $100,000, plus a possible performance bonus. The contract includes the creation of the website to communicate information about the customer’s products, to sell products, and to collect payment for the products. The target completion date for the project is October 22, 2021. The pricing of the customized website includes a potential performance bonus to be paid to Consulting Inc. if the website is completed between October 1 - October 22, 2021. The performance bonus will be reduced each week closer to the October 22, 2021 deadline. A bonus will not be paid if the project is completed after October 22, 2021. Based on Consulting Inc.’s historical experience and the assessment of its current capabilities, the potential bonuses/probability are summarized in the table below: Completion Date Probability of Outcome Performance Bonus October 1, 2021…
- Infotech Bhd enters a contract on 1 January 2019 to produce software for a customer for RM5,000,000. Infotech Bhd receives RM2,000,000 from the customer upon contract signing and the balance at the completion of the contract. According to the contract, the customer controls the system during the creation of the program. Infotech Bhd estimates that it will take two years to complete the project and uses the number of labor hours to estimate the rate of completion. Macro Tech spends 30,000 hours in the first year of the contract and another 20,000 hours the second year. Required: Prepare the entries recorded by Macro Tech over the life of this contract. Assume that all payments are complete by the end of 2020.Infotech Bhd enters a contract on 1 January 2019 to produce software for a customer for RM7,000,000. Infotech Bhd receives RM2,000,000 from the customer upon contract signing and the balance at the completion of the contract. According to the contract, the customer controls the system during the creation of the program. Infotech Bhd estimates that it will take two years to complete the project and uses the number of labor hours to estimate the rate of completion. Infotech spends 40,000 hours in the first year of the contract and another 10,000 hours the second year Prepare the entries recorded by Infotech over the life of this contract. Assume that all payments are complete by the end of 2020On July 1, Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $32,000 at the end of each month, and, if total cost savings reach a specific target, PU will pay an additional $27,000 to Wiggins at the end of the contract. Wiggins estimates a 80% chance that cost savings will reach the target. Assume that Wiggins estimates uncertain consideration as the most likely amount. Required: Do the following for Wiggins: a. Prepare the journal entry on July 31 to record the first month of revenue under the contract. b. Assuming total cost savings exceed the target, prepare the journal entry, if any, on October 31 to record receipt of the $27,000 bonus (ignore the normal October payment of $32,000). c. Assuming total cost savings do not reach the target, prepare the journal…
- In September 2020, Gaertner Corp. commits to selling 150 of its iPhone-compatible docking stations to Better Buy Co. for $15,000 ($100 per product). The stations are delivered to Better Buy over the next 6 months. After 90 stations are delivered, the contract is modified and Gaertner promises to deliver an additional 45 products for an additional $4,275 ($95 per station). All sales are cash on delivery. Instructions a. Prepare the journal entry for Gaertner for the sale of the first 90 stations. The cost of each station is $54. b. Prepare the journal entry for the sale of 10 more stations after the contract modification, assuming that the price for the additional stations reflects the standalone selling price at the time of the contract modification. In addition, the additional stations are distinct from the original products as Gaertner regularly sells the products separately. c. Prepare the journal entry for the sale of 10 more stations (as in (b)), assuming that the pricing…On July 1, Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $25,000 at the end of each month, and, if total cost savings reach a specific target, PU will pay an additional $20,000 to Wiggins at the end of the contract. Wiggins estimates a 75% chance that cost savings will reach the target.Assume that Wiggins estimates uncertain consideration as the most likely amount. Required:Do the following for Wiggins:a. Prepare the journal entry on July 31 to record the first month of revenue under the contract.b. Assuming total cost savings exceed the target, prepare the journal entry, if any, on October 31 to record receipt of the $20,000 bonus (ignore the normal October payment of $25,000).c. Assuming total cost savings do not reach the target, prepare the journal entry, if…On July 1, Wiggins Associates enters into a contract to provide consulting services to Pennsylvania University (PU). The contract is anticipated to last four months and is intended to achieve significant cost savings at the university. The contract stipulates that PU will pay Wiggins $25,000 at the end of each month, and, if total cost savings reach a specific target, PU will pay an additional $20,000 to Wiggins at the end of the contract. Wiggins estimates a 75% chance that cost savings will reach the target. Assume that Wiggins estimates variable consideration as the expected value. Required: Prepare the journal entry on July 31 to record the first month of revenue under the contract. Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field. View transaction list Journal entry worksheet 1 Record the first month of revenue under the contract.