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    Determining Gross Profit Rate for Revenue Recognition

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    Curiosity Company

    Curiosity Company provided the following financial information for its installment-sales for the current year.

    Financial Data:
    Installment sales for current year $ 800,000
    Cost of Goods Sold on installment basis $ 600,000
    Payments by customers $ 320,000

    Repossessed Merchandise - Unpaid balances $ 52,000
    Repossessed Merchandise - Estimated Value $ 26,800

    a) Prepare journal entries for the end of the year based on the information above.

    b) Prepare the entry to record the gross profit realized in the current year.

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    Solution Preview

    We would write the entries like this, using these accounts:
    A/R - installment sales 800,000
    Revenue 800,000
    Cost of sales 600,000
    Inventory 600,000
    Cash 320,000
    A/R ...

    Solution Summary

    This solution shows how to prepare the journal entries for the end of the year and to record gross profit realized in the current year for Curiosity Company.