Dress Designers, Inc. has entered into a contract to design 50 new dresses for a customer. It will collect a total of $42,000 after the design services are complete. Dress Designers started design work on June 1. As of June 30, it finished 10 of the 50 designs. The company will make an adjusting entry at the end of June to accrue $10,500 of service revenue.

Question

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The revenue should be recognized based on the proportion of work completed. As of June 30, 20% of the work is done (10 out of 50 designs), so the revenue to be accrued should be $8,400 (20% of $42,000), not $10,500.