Question

1.)DCH (see #2) has another client which pays a monthly retainer of $25,000 on the last day of the month for services to be provided the following month. HelpMe Inc. paid the normal retainer from December through May. DCH provided services of $30,000 in January, $33,000 in February and $38,000 in March. Accordingly, in addition to the monthly retainer, HelpMe paid DCH, $5,000 in March, $8,000 in April and $13,000 in May. How much revenue should be recorded in each month December through March?

2.)In June, Sylvester McConkey McBean, agreed to provide 10,000 thneeds to a customer at a price of $10 per thneed. The customer was required to provide a deposit of $20,000 in June, and another $30,000 in July with the remainder due within 30 days of deliver of the thneeds. In July, McBean successfully harvested the trufula needed to produce all of the thneeds. In August the thneeds were produced and on September 3, the thneeds were delivered. The final payment of $50,000 was received as scheduled on October 3. How much revenue should be recorded in June, July, August, September and October?

3.) In connection with #29 above, Sylvester McBonkey McBean incurred the following costs associated all directly related to the production of the 10,000 thneed order. June $1,000, July $10,000, August $20,000, September $4,000. All of the costs were paid for in the month incurred. How much expense should be recorded by McBean in June, July, August, September and October?

4.)Cramer Company has always paid a Christmas Bonus to each of its employees equal to $100 per month for each month worked during the year. The bonuses are paid on December 15^th to employees who are still working on that date. Regular payroll costs for the months of January through March and the number of employees in each month were as follows: January, $37,500, 10 employees; February, $41,250, 11 employees; March $45,000, 12 employees. How much payroll and related expense should the company record in January, February and March?

Answer 1

1) As per realization concepts, revenue is recognized when the related goods/services have been delivered/performed. So, DCH would record revenue of $30,000 in January, $33,000 in February and $38,000 in March. It will not record any revenue in December since it has only received payment which is in advance.

2) Again as stated in the previous question, revenue is recognized when the related goods/services have been delivered/performed and not when the contract is signed or payment is received. Therefore, Sylvester McConkey McBean will record revenue of $100,000 on 3^rd September and nothing in other months.

3) As per accounting concepts, Expenses are recorded when they incur. So, the company would recognize a cost of $1,000 in June, $10,000 in July, $20,000 in August, and $4,000 in September.

4)

Month	No. of Employees	Regular Payroll	Christmas Bonus	Payroll and related expense
January	10	$37,500.00	$1,000.00	$38,500.00
February	11	$41,250.00	$1,100.00	$42,350.00
March	12	$45,000.00	$1,200.00	$46,200.00

Christmas Bonus:

January = $100*10 = $1,000
February = $100*11 = $1,100
March = $100*12 = $1,200