Problem:
For the Gina Const. I keep coming up with 9,500,000 revenue to be recognized but the check figures in my text says it should be 9,750,000.
Simona Amanar Industries has two operating divisions-Gina Construction Division and Chorkina Securities Division. Each division maintains its own accounting system and method of revenue recognition.
Gina Construction Division:
During the fiscal year ended November 30,2007, Gina Constgruction Division had one construction project in process. A $30,000,000 contract for construction of a civic center was granted on June 19,2007, and construction began on August 1,2007. Estimated costs of completion at the contract date were $25,000,000 over a 2-year time period from the date of the contract. On November 30, 2007, construction costs of $7,800,000 had been incurred and process billings of $9,500,000 had been made. The construction costs to complete the remainder of the project were reviewed on November 30,2007, and were estimated to amount to only $16,200,000 because of an expected decline in raw materials costs. Revenue recognition is based upon a percentage-of-completion method.
Chorkina Securities Division:
Chorkina Securities Division works through manufactures' agents in various cities. Orders for alarm systems and down payments are forwarded from agents, and the division ships the goods f.o.b. factory directly to customers (usually police departments and security guard companies). Customers are billed directly for the balance due plus actual shipping costs. The company received orders for $6,000,000 of goods during the fiscal year ended Nonmember 30,2008. Down payments of $600,000 were received and $5,200,000 of goods were billed and shipped. Actual freight costs of $100,000 were also billed. Commissions of 10% on product price are paid to manufacturing agents after goods are shipped to customers. Such goods are warranted for 90 days after shipment, and warranty returns have been about 1% of sales. Revenue is recognized at the point of sale by this division.
Compute the revenue to be recognized in fiscal year 2008 for the two operating divisions of Simona Amanar Industries in accordance with generally accepted accounting principles.