(Installment-Sales Method and Cost Recovery Method)
Eagle Flyer Corp. operates on a calendar-year basis, and began making installment sales in 2014; the company usese the installment-sales method of profit recognition in accounting. The following data were taken from the 2014 and 2015 records.
2014 2015
Installment sales $750,000 $1,350,000
Gross profit as a percent of costs 18% 20%
Cash collections on sales of 2014 $340,000 $340,000
Cash collections on sales of 2015 -0- $580,000
The amounts given for cash collections exclude amounts collected for interest charges.
Instructions
(a) Compute the amount of realized gross profit to be recognized on the 2014 income statement, prepared using the installment-sales method.
(b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2015.
(c) Compute the amount of realized gross profit to be recognized on the 2015 income statement, prepared using the cost-recovery method.