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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.

#### 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.

\$2.19

## accounting review help

- The essentials of record-keeping.
- Preparation of simple financial statements.
- Balance sheet: Asset and Liability measurement and recognition.
- Income Statement: Revenue and expense recognition and measurement
- Account receivable; advances form customers; revenue recognition.

- Measuring and reporting working capital accounts: cash; prepayments; inventory; accounts payable; warranties; restructuring charges.

- Cost Behavior, decision making and simple budgeting: fixed and variable costs; relevant costs for decision making; cost-volume-profit analysis.

- Noncurrent assets: recognition and measurement of noncurrent assets; tangible and intangible assets; depreciation; impairment testing.

- Introduction to investments: introduction to investment in debt and equity securities; marketable securities and equity method investment.

- Statement of cash flows: preparing and understanding a statement of cash flows.

- Bonds: liabilities-bonds.

- Performance measurement: introduction to financial statement analysis; assessing firm level performance and an introduction to FSA.

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