Exercise 18-26 Seaver Company uses the installment-sales method in accounting fo
ID: 2498190 • Letter: E
Question
Exercise 18-26
Seaver Company uses the installment-sales method in accounting for its installment sales. On January 1, 2014, Seaver Company had an installment account receivable from Jan Noble with a balance of $2,600. During 2014, $1,300 was collected from Noble. When no further collection could be made, the merchandise sold to Noble was repossessed. The merchandise had a fair value of $760 after the company spent $67 for reconditioning of the merchandise. The merchandise was originally sold with a gross profit rate of 22%.
Prepare the entries on the books of Seaver Company to record all transactions related to Noble during 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(To record the collection of cash on installment accounts receivable.)
(To recognize gross profit on installment sale.)
(To record default and repossession of merchandise.)
(To record cash spent on reconditioning of inventory.)
Exercise 18-26
Seaver Company uses the installment-sales method in accounting for its installment sales. On January 1, 2014, Seaver Company had an installment account receivable from Jan Noble with a balance of $2,600. During 2014, $1,300 was collected from Noble. When no further collection could be made, the merchandise sold to Noble was repossessed. The merchandise had a fair value of $760 after the company spent $67 for reconditioning of the merchandise. The merchandise was originally sold with a gross profit rate of 22%.
Prepare the entries on the books of Seaver Company to record all transactions related to Noble during 2014. (Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(To record the collection of cash on installment accounts receivable.)
(To recognize gross profit on installment sale.)
(To record default and repossession of merchandise.)
(To record cash spent on reconditioning of inventory.)
Explanation / Answer
Dr Cash 1,300
Cr Installment Accounts Receivable 1,300
(To record the collection of cash on installment accounts receivable.)
Dr Deferred Gross Profit (22% X $1,300)286
Cr Realized Gross Profit 286
(To recognize gross profit on installment sale.)
Dr Repossessed Merchandise 693
Dr Deferred Gross Profit (22% X $1,300
286
Dr Loss on Repossession321
Cr Installment Accounts Receivable ($2,600 – $1,300)1300
(To record default and repossession of merchandise.)
Dr Repossessed Merchandise67
Cr Cash67
(To record cash spent on reconditioning of inventory.)
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