{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

oct31class (1)

# oct31class (1) - Installment Sales Method The installment...

This preview shows pages 1–12. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Installment Sales Method The installment sales method recognizes the gross profit by applying the gross profit percentage on the sale to the amount of cash actually collected.
E 5-2: Installment sales method Charter Corporation, which began business in 2011, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2011 and 2012: 1. How much gross profit should Charter recognize in 2011 and 2012 from installment sales?

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
E 5-2: Installment sales method Charter Corporation, which began business in 2011, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2011 and 2012: 1. How much gross profit should Charter recognize in 2011 from installment sales? 2011: (\$360,000 – 234,000)/\$360,000 = 35% gross profit 2011 gross profit: Cash collection from 2011 sales of \$150,000 x 35% = \$52,500
E 5-2: Installment sales method Charter Corporation, which began business in 2011, appropriately uses the installment sales method of accounting for its installment sales. The following data were obtained for sales made during 2011 and 2012: 1. How much gross profit should Charter recognize in 2012 from installment sales? 2012: (\$350,000 – 245,000)/\$350,000 = 30% gross profit 2012 gross profit: Cash collection from 2011 sales of \$100,000 x 35% = \$ 35,000 + Cash collection from 2012 sales of \$120,000 x 30% = 36,000 Total 2012 gross profit \$ 71,000

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2. What should be the balance in the deferred gross profit account at the end of 2011 and 2012?
2. What should be the balance in the deferred gross profit account at the end of 2011 and 2012? 2011 deferred gross profit balance: 2011 initial gross profit (\$360,000 – 234,000) \$126,000 Less: Gross profit recognized in 2011 (52,500 ) Balance in deferred gross profit account \$73,500 2012 deferred gross profit balance: 2011 initial gross profit (\$360,000 – 234,000) \$ 126,000 Less: Gross profit recognized in 2011 (52,500) Gross profit recognized in 2012 (35,000) 2012 initial gross profit (\$350,000 – 245,000) 105,000 Less: Gross profit recognized in 2012 (36,000 ) Balance in deferred gross profit account \$107,500

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Cost Recovery Method The cost recovery method defers all gross profit recognition until cash equal to the cost of the item sold has been collected.
Cost Recovery Method: Example The sales agreement requires the customer to make four equal annual payments of \$200,000, beginning November 1, 2011. The land cost \$560,000 to develop. The company’s fiscal year ends on December 31. Date Cash Collected Cost Recovery Gross Profit Recognized Nov. 1, 2011 \$ 200,000 \$ 200,000 \$ - Nov. 1, 2012 200,000 200,000 - Nov. 1, 2013 200,000 160,000 40,000 Nov. 1, 2014 200,000 - 200,000

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Other types of delays (deferrals) 1. Multiple elements (bundles) 2. Right of return
Software and Other Multiple-Deliverable Arrangements If a sale includes multiple elements (software, future upgrades, post-contract customer support, etc.), the revenue should be allocated to the elements that have stand-alone value (e.g., aren‘t contingent). Otherwise, defer revenue recognition until the last item delivered.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### Page1 / 34

oct31class (1) - Installment Sales Method The installment...

This preview shows document pages 1 - 12. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online