On 15 January 2022, Alice Sharpe signed a contract with Custom Audio Ltd for a total sound renovation at her home. The price for the contract is $25,300 (including GST). In exchange, Custom Audio Ltd will:

• Deliver and set up sound systems in the lounge and games room, normally valued at $16,000 (excluding GST). This is scheduled for 20 January 2022.
• Install high-quality audio wiring, additional speakers and touchpads throughout the home, normally valued at $6,000 (excluding GST). This is scheduled for 5 February 2022.
• Deliver and install an outdoor audio system for Alice’s spa pool area, normally valued at $3,000 (excluding GST). This is scheduled for 11 February 2022.

Custom Audio Ltd prides itself on punctuality and meets its performance obligations on the scheduled dates. An invoice for the full amount of the contract is given to Alice on the day that the sound systems are set up. It is due within 10 business days. However, Alice is late to pay the invoice, attracting a 2% penalty on the amount owed; she pays the full amount and penalty on 2 February 2022.

Required:

• (a) Apply the five-step revenue recognition model to the above scenario in order to determine how Custom Audio Ltd will account for the contract with Alice Sharpe.

• (b) Prepare entries in Custom Audio Ltd’s general journal for all the events in the above scenario. Note: Narrations are not required for the entries.

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Part (a)

Step 1:

Step 2:

Step 3:

Step 4:

Performance obligations	Stand-alone price		Allocation
	$	%	$
TOTAL

Step 5:

Part (b)

Note that there are more rows in the table below than are necessary to complete the entries.

Date	Account names	Debit	Credit

Answer rating: 100% (QA)

Part a Step 1 Identify the contract with the customer The contract between Custom Audio Ltd and Alice Sharpe is for the total sound renovation of her ... View the full answer