Kohlrabi Electronics Ltd. operates an online electronics business selling hardware and software. Customers confirm the goods ordered and pay for their purchase before Kohlrabi ships the merchandise they have ordered. The company also provides IT consulting services to larger customers. Customers who require consulting services sign a contract and are required to pay a 20% deposit at the time of signing. The remaining 80% is due on the delivery of the final consulting report. During 2020, the online business collected $6,097,000 from hardware and software sales. At year end, August 31, 2020, the IT consulting services had collected $897,000 cash which included $260,000 for services scheduled to be completed by December 31, 2020. Kohlrabi paid $2,199,000 for the hardware and software inventory sold during the year and $1,447,000 for wages to technical and warehouse staff. The company owed $56,000 in wages to its staff at year end, which will be paid on September 11, 2020, as part of the normal weekly pay schedule.

Required

a. Prepare as much of the single-step statement of income for Kohlrabi Electronics Ltd. as you can, presenting the amount of sales revenue for each revenue stream and any other amounts that should be included. Show all calculations.

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

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

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