P4-17) Mica Computers provides customers the option to purchase products with th
ID: 2427922 • Letter: P
Question
P4-17) Mica Computers provides customers the option to purchase products with three installment payments made over 12 months (equal payments at the end of the 4th, 8th, and 12th months). In January 2013, Mica sold $30,000 of computers to one customer on this installment plan. The cost of these computers is $22,500.
Using the installment sales method, record the journal entries for Mica's installment sales made in January 2013 and the subsequent payments received. Assume all installment payments are received, and ignore the time value of money.
Explanation / Answer
% of profit = (30000-22500) / 30000 = 7500 /30000 = .25 or 25%
Installment amount = 30000/ 3 = 10000
2014
Jan cash 10000
Installment receivables 10000
[being 3 rd installment collected]
Deferred gross profit 2500
Gross profit on sales 2500
S no. Account ttile Debit credit 1 Installment receivables 30,000 Installment sales 30,000 [being sales made] 2 cost of goods sold 22500 Inventory 22500 [being cost of sales recorded] 3 cash 10000 Installment receivable 10000 4 Deferred gross profit 2500 Gross profit on sales [10000*.25] 2500 [being profit on sales is recognised up to payment received ] 5 cash 10000 Installment receivable 10000 [being 2 nd installment collected] 6 Deferred gross profit 2500 Gross profit on sales 2500 [being profit realized]Related Questions
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