Swift Corp., a capital goods manufacturing business that started on January 4, 2
ID: 2481218 • Letter: S
Question
Swift Corp., a capital goods manufacturing business that started on January 4, 2014, and operates on a calendar-year basis, uses the installment-sales method of profit recognition in accounting for all its sales. The following data were taken from the 2014 and 2015 records.
2014 2015
Installment sales $517,000 $605,000
Gross profit as a percent of costs 22 % 27 %
Cash collections on sales of 2014 $132,000 $172,000
Cash collections on sales of 2015 –0– $249,000
The amounts given for cash collections exclude amounts collected for interest charges.
Compute the amount of realized gross profit to be recognized on the 2015 income statement, prepared using the installment-sales method.
Compute the amount of realized gross profit to be recognized on the income statement, prepared using the cost-recovery method.
Explanation / Answer
Amount of realised gross profit to be recognized on the income statement for the year 2015 is as follows:
Therefore, gross profit to be recognized for 2015 =$83,953.40.
Under cost recovery method:
Total sales for 2014 =$517,000.
Cost of sales =(100-18.03)%.
Therefore, cost of sales =$423,770.
So, gross profit is recognized only after collections more than cost of sales.
So, no gross profit is recognized for 2014 as well as 2015.
Year 2014 2015 Calculation Installment sales 517000 605000 Gross profit as a % of costs 22% 27% Gross profit as % of sales 18.03% 21.26% Gross profit as % of sales is calculated as gross profit/(100+gross profit) i.e., (22/122)*100 and (27/127)*100 Cash collections on sales of 2014 132000 172000 Cash collections on sales of 2015 249000 Gross profit to be recognized for 2015 83953.40132 Sales collections of 2014* gros profit % on sales+Sales collections of 2015* Grossprofit % on sales fo 2015.Related Questions
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