Romano Services Provides Room Cleaning Arrangements for Hotels in Ohio

question 151

Essay

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 earn 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 earn the quarterly bonus.
• On June 30, Silvia notified Romano that, for the quarter ended, there were four complaints associated with room cleanliness, so Romano would receive the bonus. Two days later, Romano received all payments due for all services rendered in the second quarter, including the bonus.

Romano bases estimates of variable consideration on the expected value of the consideration it expects to

-Prepare Romano'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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