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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.