Kadowaki Corp., a capital goods manufacturing business that started on January 4, 2007, and operates on a calendar-year basis, uses the installment-sales method of profit recognition in accounting for all its sales. The following data were taken from the 2007 and 2008 records.
Installment sales $520,000 $750,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2007 $160,000 $215,000
Cash collections on sales of 2008 $- $220,000
(a) Compute the amount of realized gross profit to be recognized on the 2008 income statement, prepared using the installment-sales method.
(b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2008.
(c) Compute the amount of realized gross profit to be recognized on the income statement, prepared using the cost-recovery method.
The solution discusses Kadowaki Corp. installment sales method.