Problem 2 :

Katoby Associates provides consulting services to Connor to help them realize increased sales. The four month contract,

dated July 1st, requires Connor to pay Katoby $25,000 at the end of each month. In addition, Connor will pay an additional

$20,000 to Katoby at the end of the contract, if certain sales targets are achieved. Katoby estimates a 75% chance that

sales will reach the target.

Assume that Katoby estimates variable consideration as the most likely amount.

Part 1: Prepare the journal entry on July 31 to record the first month of revenue under the contract.

Part 2: Assuming total sales 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).

Part 3: Assuming total sales do not reach the target, prepare the journal entry, if any, on October 31 to record failure to

receive the $20,000 bonus (ignore the normal October payment of $25,000).

Assume that Katoby estimates variable consideration as the expected value.

Part 4: Prepare the journal entry on July 31 to record the first month of revenue under the contract.

Part 5: Assuming total sales 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).

Date