Kim Le is the senior accountant on the Brothers Manufacturing Ltd (BML) audit for the year ended December 31, 2020 This is Kims second year on the engagement BML has traditionally produced custom furniture for private clients During the year, it signed an agreement with The Block, a well established nationwide furniture retail chain, to produce an entire line of accent furniture This is a significant contract for BML and it is the first time it has signed a multi year contract During the year, BML signed another contract with a Howard Corp for a large delivery of office furniture Due to its large size, the contract has terms that are different than normal The audit partner has asked Kim Le to review how BML has recorded the revenue related to the contracts at December 31, 2020, and to propose any adjusting entries if necessary BML follows Accounting Standards for Private Enterprises (ASPE) The following information was provided Appendix I, details related to The Block contract Appendix II, details related to the Howard Corp contract Review the details of the contract with The Block in Appendix I and determine if BML recorded the revenue amount and contract costs correctly If not, prepare the required adjusting journal entry or entries Q1 how to adjust revenue and cost of goods sold related to the November order Q2 how to adjust revenue and cost of goods sold related to the December order Q3 How to adjust for the contract costs as at December 31, 2020 Appendix I Details Related to The Block Contract Details related to The Block contract On September 30, 2020, BML and The Block signed a two year sales agreement that commenced on November 1, 2020 BML agreed to sell to The Block $15,000 of furniture per month over the term of the contract The cost to manufacture the furniture each month is $11,000 Shipping terms are FOB shipping point Payment is due 30 days from shipment The November order shipped on November 30 and the revenue and cost of goods sold was recorded on that date The December order shipped on January 2, 2021, because of delays related to holiday scheduling Revenue and cost of goods sold related to the order was recorded on December 31, 2020 BML incurred costs in obtaining and negotiating this contract in September Costs incurred consisted of commission fees paid of $3,000, legal fees to prepare the contract of $9,240, and an allocation of administrative time to meet with the customer of $6,000 These costs were initially all expensed under their respective accounts commissions, legal fees, and administrative salaries during September when incurred However, BML's policy is to capitalize and amortize contract costs evenly over the term of the contract, rather than immediately expense BML's practice is to ensure that all related contract costs are recovered as part of the profit related to the contract Appendix II Details Related to the Howard Corp Contract Details related to the Howard Corp contract BML signed a contract for custom made office furniture totalling $120,000 with Howard Corp The contract specifies that the furniture would be shipped on January 2, 2020, and the furniture was shipped on this date The amount owing of $120,000 will be paid as follows $20,000 on January 2, 2020, $50,000 due on December 31, 2020, and $50,000 due on December 31, 2021 During 2020, the company recorded the receipts of the cash of $20,000 on January 1 and $50,000 on December 31 and recognized sales revenue of $120,000 On December 31, a note receivable of $50,000 is still outstanding Note from BML's controller Normally, this furniture would have been sold for $110 400 if the invoice were paid within 30 days of shipment According to BML's accounting policies, the effective interest method is used for amortization of interest revenue for a long term note Appendix I Details Related to The Block Contract Details related to The Block contract On September 30, 2020, BML and The Block signed a two year sales agreement that commenced on November 1, 2020 BML agreed to sell to The Block $15,000 of furniture per month over the term of the contract The cost to manufacture the furniture each month is $11,000 Shipping terms are FOB shipping point Payment is due 30 days from shipment The November order shipped on November 30 and the revenue and cost of goods sold was recorded on that date The December order shipped on January 2, 2021, because of delays related to holiday scheduling Revenue and cost of goods sold related to the order was recorded on December 31, 2020 BML incurred costs in obtaining and negotiating this contract in September Costs incurred consisted of commission fees paid of $3,000, legal fees to prepare the contract of $9,240, and an allocation of administrative time to meet with the customer of $6,000 These costs were initially all expensed under their respective accounts commissions, legal fees, and administrative salaries during September when incurred However, BML's policy is to capitalize and amortize contract costs evenly over the term of the contract, rather than immediately expense BML's practice is to ensure that all related contract costs are recovered as part of the profit related to the contract Appendix II Details Related to the Howard Corp Contract Details related to the Howard Corp contract BML signed a contract for custom made office furniture totalling $120,000 with Howard Corp The contract specifies that the furniture would be shipped on January 2, 2020, and the furniture was shipped on this date The amount owing of $120,000 will be paid as follows $20,000 on January 2, 2020, $50,000 due on December 31, 2020, and $50,000 due on December 31, 2021 During 2020, the company recorded the receipts of the cash of $20,000 on January 1 and $50,000 on December 31 and recognized sales revenue of $120,000 On December 31, a note receivable of $50,000 is still outstanding Note from BML's controller Normally, this furniture would have been sold for $110 400 if the invoice were paid within 30 days of shipment According to BML's accounting policies, the effective interest method is used for amortization of interest revenue for a long term

Question

Kim Le is the senior accountant on the Brothers Manufacturing Ltd  (BML) audit for the year ended December 31, 2020  This is Kims second year on the engagement  BML has traditionally produced custom furniture for private clients  During the year, it signed an agreement with The Block, a well established nationwide furniture retail chain, to produce an entire line of accent furniture  This is a significant contract for BML and it is the first time it has signed a multi year contract  During the year, BML signed another contract with a Howard Corp  for a large delivery of office furniture  Due to its large size, the contract has terms that are different than normal  The audit partner has asked Kim Le to review how BML has recorded the revenue related to the contracts at December 31, 2020, and to propose any adjusting entries if necessary  BML follows Accounting Standards for Private Enterprises (ASPE)  The following information was provided  Appendix I, details related to The Block contract Appendix II, details related to the Howard Corp  contract Review the details of the contract with The Block in Appendix I and determine if BML recorded the revenue amount and contract costs correctly  If not, prepare the required adjusting journal entry or entries  Q1 how to adjust revenue and cost of goods sold related to the November order  Q2  how to adjust revenue and cost of goods sold related to the December order  Q3  How to adjust for the contract costs as at December 31, 2020  Appendix I  Details Related to The Block Contract Details related to The Block contract On September 30, 2020, BML and The Block signed a two year sales agreement that commenced on November 1, 2020  BML agreed to sell to The Block $15,000 of furniture per month over the term of the contract  The cost to manufacture the furniture each month is $11,000  Shipping terms are FOB shipping point  Payment is due 30 days from shipment The November order shipped on November 30 and the revenue and cost of goods sold was recorded on that date  The December order shipped on January 2, 2021, because of delays related to holiday scheduling  Revenue and cost of goods sold related to the order was recorded on December 31, 2020  BML incurred costs in obtaining and negotiating this contract in September  Costs incurred consisted of commission fees paid of $3,000, legal fees to prepare the contract of $9,240, and an allocation of administrative time to meet with the customer of $6,000  These costs were initially all expensed under their respective accounts commissions, legal fees, and administrative salaries   during September when incurred  However, BML's policy is to capitalize and amortize contract costs evenly over the term of the contract, rather than immediately expense  BML's practice is to ensure that all related contract costs are recovered as part of the profit related to the contract  Appendix II  Details Related to the Howard Corp  Contract Details related to the Howard Corp  contract BML signed a contract for custom made office furniture totalling $120,000 with Howard Corp  The contract specifies that the furniture would be shipped on January 2, 2020, and the furniture was shipped on this date  The amount owing of $120,000 will be paid as follows  $20,000 on January 2, 2020, $50,000 due on December 31, 2020, and $50,000 due on December 31, 2021  During 2020, the company recorded the receipts of the cash of $20,000 on January 1 and $50,000 on December 31 and recognized sales revenue of $120,000  On December 31, a note receivable of $50,000 is still outstanding  Note from BML's controller  Normally, this furniture would have been sold for $110 400 if the invoice were paid within 30 days of shipment  According to BML's accounting policies, the effective interest method is used for amortization of interest revenue for a long  term note  Appendix I  Details Related to The Block Contract Details related to The Block contract On September 30, 2020, BML and The Block signed a two year sales agreement that commenced on November 1, 2020  BML agreed to sell to The Block $15,000 of furniture per month over the term of the contract  The cost to manufacture the furniture each month is $11,000  Shipping terms are FOB shipping point  Payment is due 30 days from shipment The November order shipped on November 30 and the revenue and cost of goods sold was recorded on that date  The December order shipped on January 2, 2021, because of delays related to holiday scheduling  Revenue and cost of goods sold related to the order was recorded on December 31, 2020  BML incurred costs in obtaining and negotiating this contract in September  Costs incurred consisted of commission fees paid of $3,000, legal fees to prepare the contract of $9,240, and an allocation of administrative time to meet with the customer of $6,000  These costs were initially all expensed under their respective accounts commissions, legal fees, and administrative salaries   during September when incurred  However, BML's policy is to capitalize and amortize contract costs evenly over the term of the contract, rather than immediately expense  BML's practice is to ensure that all related contract costs are recovered as part of the profit related to the contract  Appendix II  Details Related to the Howard Corp  Contract Details related to the Howard Corp  contract BML signed a contract for custom made office furniture totalling $120,000 with Howard Corp  The contract specifies that the furniture would be shipped on January 2, 2020, and the furniture was shipped on this date  The amount owing of $120,000 will be paid as follows  $20,000 on January 2, 2020, $50,000 due on December 31, 2020, and $50,000 due on December 31, 2021  During 2020, the company recorded the receipts of the cash of $20,000 on January 1 and $50,000 on December 31 and recognized sales revenue of $120,000  On December 31, a note receivable of $50,000 is still outstanding  Note from BML's controller  Normally, this furniture would have been sold for $110 400 if the invoice were paid within 30 days of shipment  According to BML's accounting policies, the effective interest method is used for amortization of interest revenue for a long  term

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Kim Le is the senior accountant on the Brothers Manufacturing Ltd. (BML) audit for the year ended December 31, 2020. This is Kims second year

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