314 SECTION 1 The Role of Accounting as an Information System An alternate exercise and problem set is available in the Connect library. Charter Corporation, which began business in 2016, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2016 and 2017: 2016 2017 Installment sales $360,000 $350,000 Cost of installment sales 234,000 245,000 Cash collections on installment sales during: 2016 150,000 100,000 2017 — 120,000 2016 2017 Installment sales $360,000 $350,000 Cost of installment sales 234,000 245,000 Cash collections on installment sales during: 2016 150,000 100,000 2017 — 120,000 Exercises E 5–27 Installment sales method Required: 1. How much gross profit should Charter recognize in 2016 and 2017 from installment sales? 2. What should be the balance in the deferred gross profit account at the end of 2016 and 2017? This is a variation of Exercise 5–27 focusing on journal entries. Charter Corporation, which began business in 2016, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales during 2016 and 2017: E 5–28 Installment sales method; journal entries Required: Prepare summary journal entries for 2016 and 2017 to account for the installment sales and cash collections. The company uses the perpetual inventory system. On July 1, 2016, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1, 2017. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system. Required: 1. Compute the amount of gross profit to be recognized from the installment sale in 2016, 2017, 2018, and 2019 if revenue was recognized upon delivery. Ignore interest charges. 2. Repeat requirement 1 applying the installment sales method. 3. Repeat requirement 1 applying the cost recovery method. This is a variation of Exercise 5–29 focusing on journal entries. On July 1, 2016, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 due on each July 1, beginning July 1, 2017. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $120,000. The company uses the perpetual inventory system. Required: 1. Prepare the necessary journal entries for 2016 and 2017 assuming revenue recognition upon delivery. Ignore interest charges. 2. Repeat requirement 1 applying the installment sales method. 3. Repeat requirement 1 applying the cost recovery method. Wolf Computer Company began operations in 2016. The company allows customers to pay in installments for many of its products. Installment sales for 2016 were $1,000,000. If revenue is recognized at the point of delivery, $600,000 in gross profit would be recognized in 2016. If the company instead uses the cost recovery method, $100,000 in gross profit would be recognized in 2016. E 5–29 Installment sales; alternative recognition methods E 5–30 Journal entries; point of delivery, installment sales, and cost recovery methods E 5–31 Installment sales and cost recovery methods; solve for unknowns
Spiceland_Inter_Accounting8e_Ch05
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