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    Journal Entries - Installment Sales Method

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    Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2011 and 2012 is as follows:

    2011 2012
    Sales $ 255,000 355,000
    Cost of sales 153,000 248,500
    Customer collections on:
    2011 sales 120,000 100,000
    2012 sales 150,000

    Prepare all necessary journal entries for each year. (Omit the "$" sign in your response.)

    2012 To recognize gross profit from installment sales Debit Credit
    Deferred gross profit
    Realized gross profit

    I only need this portion of the journal entries.

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    Solution Preview

    The gross profit percentages are as follows:

    2011 2012
    Sales $ 255,000 ...

    Solution Summary

    This solution illustrates how to compute the gross profit under the installment sales method and how to journalize the cash receipt in a subsequent year.