Problem 1: J.C. Clendenin accounts for installment sales by reporting income in the proportion of the collections to the selling price.
On December 31 20X3 the books show account balances as follows:
|
Installment Contract Receivable
|
Deferred Gross Profit
|
|
20X1
|
$10,000
|
20X1
|
$8,000
|
|
20X2
|
40,000
|
20X2
|
26,000
|
|
20X3
|
90,000
|
20X3
|
105,000
|
The gross profit rate were 20X1 35%, 20X2 30%, 20X3 40%
1. What adjusting entries are required on December 31, 20X3?
2. How much was collected in 20X3 on accounts receivable each year?
Problem 2: The Warren Furniture Company reports income on the installment basis and uses perpetual inventory accounts. The following data are available:
|
Sales Year
|
% gross profit
|
Installment Rec. Jan 1, 20X7
|
Collected During 20X7
|
Installment Rec. On dec 31, 20X7
|
|
20X5
|
46%
|
$30,000
|
$30,000
|
-
|
|
20X6
|
42%
|
50,000
|
34,000
|
$160,000
|
|
20X7
|
40%
|
-
|
60,000
|
140,000
|
To this data, prepare an 20X7 journal entries, including those required for the recognition of gross profit at the end of the year.