Accrual basis of accounting: Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged. The revenue recognition principle: The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed. To describe: The five key steps to applying the revenue recognition principle.

Question

On May 21, 2019, Christine worked 7 hours on Job A-1, and 3 hours on general "overhead activities." Christine is paid $18 per hour. Overhead is applied based on $20 per direct labor hour. Additionally, on May 21 Job A-1 requisitioned and entered into production $280 of direct material. On May 21, Christine, while working on Job A-1 used $27 of indirect material. Indirect material is included in the overhead application rate. Use this information to determine the total cost that should have been recorded in the Work in Process for Job A-1 on May 21.

Answer 1

Question

Chapter 5, Problem 5.1E

Requirement – 1

To determine

Accrual basis of accounting:

Accrual basis of accounting means the revenues, and their related expenses of the business are reported during the period in which the event occurs, even if the cash is not exchanged.

The revenue recognition principle:

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

To describe: The five key steps to applying the revenue recognition principle.

Requirement - 2

To determine

To describe: The indicators that control has passed from the sellers to the buyer (point of revenue recognition).

Requirement - 3

To determine

To describe: The circumstances can sellers recognize revenue over time.

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On May 21, 2019, Christine worked 7 hours on Job A-1, and 3 hours on general "overhead activities." Christine is paid $18 per hour. Overhead is applied based on $20 per direct labor hour. Additionally, on May 21 Job A-1 requisitioned and entered into production $280 of direct material. On May 21, Christine, while working on Job A-1 used $27 of indirect material. Indirect material is included in the overhead application rate. Use this information to determine the total cost that should have been recorded in the Work in Process for Job A-1 on May 21.

Crane Construction Co. has consistently used the percentage-of- completion method of recognizing revenue. During 2018, Crane entered into a fixed-price contract to construct an office building for $27,000,000. Information relating to the contract is as follows: At December 31 2018 2019 Percentage of completion 10% 40% Estimated total cost at completion $ 2,00,00,000 $ 2,14,00,000 $ 33,10,000 Gross profit recognized (cumulative) $ 13,80,000 Contract costs incurred during 2019 were: a. $5,250,000. b. $6,560,000. c. $8,190,000. d. $8,560,000.

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