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On 7/1/2017, Hawk Company sold merchandise with a cost of $40,000 for $60,000 with 20% down payment and the

remaining 80% on the installment basis over 4 years. The installment payments will be received every 6 months starting from 12/31/2017. The second payment will be received on 6/30/2018.

Hawk repossessed the merchandise from the customer due to default payments on 1/1/2019 when the fair value of the repossessed merchandise was $25,000. Hawk used the effective interest method and 0% interest rate for the installment sales. Hawk also use the installment sales method.


1)     Prepare any necessary journal entries for the following transactions.

a.      For the sale and the adjustment to defer the gross profit on 7/1/2017.

b.     For the payments received in 2017.

c.      For the recognition of the gross profit realized in 2017.

d.     For the payments received in 2018.

e.      For the recognition of the gross profit realized in 2018.

f.       For the repossessed merchandise on 1/1/2019.

2)     (5 pts bonus) This is independent of instruction 1). Using interest rate of 6%,

a.     compute the install payment per 6 months.

b.     Prepare any necessary journal entries for the installment sale on 7/1/2017.

c.      Prepare any necessary journal entries for the payments received in 2017.

d.     Prepare any necessary journal entries for gross profits realized in 2017.

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