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# B state where the balance of deferred gross profit

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(b) State where the balance of Deferred Gross Profit would be reported on the financial statements for 2008. Prior year’s sales (c) Compute the amount of realized gross profit to be recognized on the income statement, prepared Rate of gross profit—2007 25% using the cost-recovery method. Cash collected on 2007 sales \$240,000 Gross profit realized in 2008 on 2007 sales (25% of \$240,000) 60,000 A. 2007 2008 Total gross profit realized in 2008 Installment sales \$480,000 \$620,000 Realized on collections of 2007 sales \$60,000 Cost of installment sales \$360,000 \$446,400 Realized on collections of 2008 sales \$50,400 Gross profit \$120,000 \$173,600 Total \$110,400 Gross profit as a percent of costs 25% 28% Cash collections on sales of 2007 \$140,000 \$240,000 Cash collections on sales of 2008 –0– \$180,000 Income Statement B. Sales 480000 Cost of goods sold 360000 Gross profit on sales 120000 Less: Deferred gross profit on installment sales 85000 of this year Realized gross profit on this year’s sales 19,000 35000 C. Year Cash received original cost Balance of unrecovered Gross profit beginning balance recovered Cost realized 360,000 12/31/2007 140,000 140,000 220,000 0 12/31/2008 240,000 220,000 0 20,000
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