Kabili Bites Ltd. operates a chain of restaurants across Canada. Most of the company’s business is from customers who enjoy in-restaurant lunches and dinners and pay before they leave. The company also provides catered food for functions outside of the restaurant. Catering customers are required to pay a 40% deposit at the time of booking the event. The remaining 60% is due on the day of the function.
During 2020, the restaurant chain collected $7,036,000 from restaurant and catered sales. At year end, December 31, 2020, the catered sales amount included $121,000 for a convention scheduled for January 12, 2021. Kabili Bites Ltd. paid $3,298,000 for food supplies during the year and $1,248,000 for wages for the chefs and other restaurant staff. The restaurant owed $62,000 in wages to its staff at year end, which will be paid on January 4, 2021, as part of the normal weekly pay schedule.

Required

a. Prepare as much of the multi-step statement of income for Kabili Bites Ltd. as you can, showing the amount of sales and any other amounts that should be included. Show all calculations.

b. Using the five-step revenue recognition method, explain when Kabili Bites can recognize revenues from its various revenue streams.

c. Did Kabili Bites have a cost of goods sold? Why or why not?

d. What other expenses do you think the company probably has?