value: 10.00 points Ajax Company appropriately accounts for certain sales using
ID: 2478612 • Letter: V
Question
value: 10.00 points Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2016 and 2017 is as follows: 2016 2017 Sales Cost of sales Customer collections on: $370,000 $470,000 240,500 282,000 2016 sales 2017 sales 155,000 135,000 185,000 Required 1. Calculate the amount of gross profit that would be nized each year from installment sales 2016 2017 Gross profit $ 54,250 $ 47,250Explanation / Answer
2016 2017 Sales 370000 470000 Cost of sales 240500 282000 Gross Profit 129500 188000 Gross profit % 35% 40% 1) Gross profit recognised in 2016 Cash collected in 2016 155000 Gross profit % 35% Gross profit in 2016 54250 Gross profit recognised in 2017 Cash collected for 2016 sales 135000 Gross profit % 35% gross profit for 2016 (A) 47250 Cash collected for 2017 sales 185000 Gross profit % 40% gross profit for 2017 (B) 74000 Total gross profit in 2017 (A + B) 121250 2) 2016 Installment receivable Dr 370000 Installment slaes Cr 370000 ( To record installment sales) Cost of goods sold Dr 240500 Inventory Cr 240500 ( To record COGS ) Installment sales Dr 370000 Cost of goods sold Cr 240500 Deferred Gross Profit Cr 129500 ( To record Gross profit deferred) Cash Dr 155000 Installment receivable Cr 155000 ( To record cash received) Deferred Gross Profit Dr 54250 Gross Profit on installment sales Cr 54250 ( To record gross profit on installment sales) 2017 Installment receivable Dr 470000 Installment slaes Cr 470000 ( To record installment sales) Cost of goods sold Dr 282000 Inventory Cr 282000 ( To record COGS ) Installment sales Dr 470000 Cost of goods sold Cr 282000 Deferred Gross Profit Cr 188000 ( To record Gross profit deferred) Cash Dr 320000 Installment receivable Cr 320000 ( To record cash received) Deferred Gross Profit Dr 121250 Gross Profit on installment sales Cr 121250 ( To record gross profit on installment sales) 3a) Cost recovery Method Date Cash collected = Cost recovery + Gross Profit 2016 2016 sales 155000 = 100750 + 54250 2017 2016 sales 135000 = 87750 + 47250 2017 sales 185000 = 111000 + 74000 2017 total 320000 = 198750 121250 3b) 2016 Installment receivable Dr 370000 Installment slaes Cr 370000 ( To record installment sales) Cost of goods sold Dr 240500 Inventory Cr 240500 ( To record COGS ) Installment sales Dr 370000 Cost of goods sold Cr 240500 Deferred Gross Profit Cr 129500 ( To record Gross profit deferred) Cash Dr 155000 Installment receivable Cr 155000 ( To record cash received) 2017 Installment receivable Dr 470000 Installment slaes Cr 470000 ( To record installment sales) Cost of goods sold Dr 282000 Inventory Cr 282000 ( To record COGS ) Installment sales Dr 470000 Cost of goods sold Cr 282000 Deferred Gross Profit Cr 188000 ( To record Gross profit deferred) Cash Dr 320000 Installment receivable-2016 Cr 135000 Installment receivable-2017 Cr 185000 ( To record cash received) Defererred gross profit-2016 Dr 49500 (240500 - 155000-135000) Gross profit on Installment sales-2016 Cr 49500 (excess of cash received over COGS) ( to record gross profit on installment sales)
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