Kenny Harrison Corporation: Compute the amount of realized gross profit to be recognized on the 2005 income statement, prepared using the installment-sales method.
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15. (Installment-Sales Method and Cost Recovery) Kenny Harrison Corp., a capital goods manufacturing business that started on January 4, 2004, 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 2004 and 2005 records.
2004 2005
Installment sales $480,000 $620,000
Gross profit as a percent of cost s 25% 28%
Cash collections on sales of 2004 $140,000 $240,000
Cash collections on sales of 2005 -0- $180,000
The amounts given for cash collections exclude amounts collected for interest charges.
a. Compute the amount of realized gross profit to be recognized on the 2005 income statement, prepared using the installment-sales method.
b. State where the balance of Deferred Gross Profit would be reported on the financial statements for 2005.
c. Compute the amount of realized gross profit to be recognized on the income
statement, prepared using the cost-recovery method.
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Hi!
To help you understand the concept clearly I shall be taking the help of an excel sheet which is enclosed.
** See ATTACHED file(s) for complete details **
Q a>))
1) First of all we shall convert the Gross Profit as % of Cost to % of Sales. (Since in 2004, Installment sales is 480000$ with 25 % as Gross Profit on cost we convert it to Gross Profit as % of Sales which we get as 20 % for 2004 and 21.88 % for 2005).
2) Now for every year we calculate the ...
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