Response to the following problem:
Kenny Harrison Corp., a capital goods manufacturing business that started Jan 4, 2008, and operates on a calendar- year basis. Plus, the use the installment sales method of profit recognition in accounting for all its sales. The following data were taken from 2008 and 2009 records.
Item: 2008 2009
Installment Sales 480,000 620,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2008 140,000 240,000
Cash collections on sales of 2009 0 180,000
Directions:
A- Compute the amount of realized gross profit to be recognized on the 2009 income statement, using the installment sales method.
B- Compute the amount of realized gross profit to be recognized on the income statement, using the cost-recovery method.