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Calculating Gross Profit from Installment Sales

Calculating Gross Profit from Installment Sales

Charter Corporation, which began business in 2011, appropriately uses the installment sales method of accounting for its installment sales. The following data was obtained for sales made during 2011 and 2012:

2011 2012
Installment sales 362,000 345,000
Cost of installment sales 234,000 246,000
Original Gross profit 128,000 99,000
Gross profit percentage 35% 29%
Cash collections on the installment sales during
2011 151,000 103,000
2012 - 119,000

Required:
1) How much gross profit should Charter recognize in 2011 and 2012 from installment sales?
2) What should be the balance in the deferred gross profit account at the end of 2011 and 2012?

See attached - figure out how much gross profit to report each year for installment sales. Then, how to calculate the balance in of deferred gross profit at the end of each year.

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Solution Summary

Calculating Gross Profit from Installment Sales

Charter Corporation, which began business in 2011, appropriately uses the installment sales method of accounting for its installment sales. The following data was obtained for sales made during 2011 and 2012:

2011 2012
Installment sales 362,000 345,000
Cost of installment sales 234,000 246,000
Original Gross profit 128,000 99,000
Gross profit percentage 35% 29%
Cash collections on the installment sales during
2011 151,000 103,000
2012 - 119,000

Required:
1) How much gross profit should Charter recognize in 2011 and 2012 from installment sales?
2) What should be the balance in the deferred gross profit account at the end of 2011 and 2012?

$2.19