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.

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

Problem 2RE: Yankee Corp. agrees to provide Albany Company 24 months of coaching services. The contract sets the...

See similar textbooks

Similar questions

On January 1, a flower shop contracts with customers to provide flowers for their wedding on June 2. The total contract price is $3,000, payable in equal installments for the next six months on the first of each month (with the first payment due January 1). How much will be recorded as revenue during the month of April?
JustKitchens Inc. provides services to restaurants and hotels. The company supplies paper products, tableware, cookware, restaurant and kitchen equipment, and cleaning supplies. On January 2, 2019, Just-Kitchens enters into a contract with a local restaurant chain to provide its services for 3 years at a cost of 10,000 per year. The restaurant chain pays the total contract fee on January 2, 2019. JustKitchenss stand-alone selling price is also 10,000 per year. After 2 years, the restaurant asks to modify the contract. On January 2, 2021, the companies agree to reduce the fee for the third year to 9,000 in exchange for extending the contract for 2 additional years at a fee of 11,000 per year. This modification is agreed to by both parties, and on that date the restaurant chain pays for the additional 2 years of service. The 11,000 fee for the additional years is the same as JustKitchenss stand-alone price. Required: 1. How should JustKitchens account for the contract modification? 2. Prepare the journal entry that JustKitchens would make over the life of the contract.
VolleyElite runs a volleyball program consisting of camps, tournaments, and specialized coaching. VolleyElite charges customers 500 per year for access to its facilities and programs. In addition, VolleyElite charges each customer a 100 registration fee. The fee is not refundable and must be paid at the initiation of the contract. Should the registration fee be considered a separate performance obligation from the yearly dues?
Yankee Corp. agrees to provide Albany Company 24 months of coaching services. The contract sets the price at 4,000 per month, which is the normal stand-alone price that Yankee charges. After 16 months, Yankee and Albany agree to modify the contract. Yankee reduces the fee for the 8 remaining months to 3,800 per month, and Albany agrees to a 24-month extension at a cost of 3,600 per month. At the time that the contract is modified, Yankee is charging other customers 3,750 per month for the coaching service. Should Yankee and Albany treat the modification as a separate contract?
On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
Scrimiger Paints wants to upgrade its machinery and on September 20 takes out a loan from the bank in the amount of $500,000. The terms of the loan are 2.9% annual interest rate and payable in 8 months. Interest is due in equal payments each month. Compute the interest expense due each month. Show the journal entry to recognize the interest payment on October 20, and the entry for payment of the short-term note and final interest payment on May 20. Round to the nearest cent if required.
Whole Leaves wants to upgrade their equipment, and on January 24 the company takes out a loan from the bank in the amount of $310,000. The terms of the loan are 6.5% annual interest rate, payable in three months. Interest is due in equal payments each month. Compute the interest expense due each month. Show the journal entry to recognize the interest payment on February 24, and the entry for payment of the short-term note and final interest payment on April 24. Round to the nearest cent if required.
On December 1, 2019, AwakcAllNight Inc. sells 5,000 super caffeinated candy bars to Campus Grocers. The candy bars sell for 3 per bar. In addition, AwakcAllNight pays Campus Grocers a 900placement fee to ensure that its candy bars are always stocked prominently by the cash register. The 900 is paid at the end of each month based on the results of random inspections of Campus Grocers by AwakcAllNight to ensure that the terms of the contract are being followed. Required: 1. Determine the transaction price for Awake AllNights revenue contract. 2. Prepare AwakeAllNights journal entries to recognize sales revenue and pay Campus Grocers the placement fee.
Gear Up Co. pays 65% of its purchases in the month of purchase, 30% in the month after the purchase, and 5% in the second month following the purchase. What are the cash payments if it made the following purchases in 2018?
Accounting for bonus and vacation pay Cathy Muench a factory worker, earns 1,000 each week. In addition, she will receive a 4,000 bonus at year-end and a four-week paid vacation. Prepare the entry to record the weekly payroll and the costs and liabilities related to the bonus and the vacation pay, assuming that Muench is the only employee.
Romano Services provides room cleaning arrangements for hotels in Ohio. On April 1, Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning functions to Romano. 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 Romano 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, Romano estimated that there is a 75% chance that it will receive the quarterly bonus. On May 5, Romano learned that, during March, there were two complaints from customers related to room cleanliness. Based on this new information, Romano revised its estimate downward to 40% that it would be entitled to receive the quarterly bonus. On June 30, Silvia notified Romano that, for the quarter ended, there were four complaints associated with…
Romano Services provides room cleaning arrangements for hotels in Ohio. On April 1, Silvia Hotels & Resorts signed an agreement to outsource its room-cleaning functions to Romano. The contract specifies the service fee to be $23,500 per month, and all payments are to be made shortly after the end of each quarter. It also specifies that Romano will receive an additional quarterly bonus of $8,100 if, during that quarter, Silvia receives no more than five complaints from customers about room cleanliness. On April 1, based on historical experience, Romano estimated that there is a 75% chance that it will receive the quarterly bonus. On May 5, Romano learned that, during March, there were two complaints from customers related to room cleanliness. Based on this new information, Romano revised its estimate downward to 40% that it would be entitled to receive the quarterly bonus. On June 30, Silvia notified Romano that, for the quarter ended, there were four complaints associated with…