On January 1, 2010, Wetzel Company sold property for $200,000. The note will be

Question

On January 1, 2010, Wetzel Company sold property for $200,000. The note will be collected as follows: $101,800 in 2010, $61,800 in 2011, and $36,400 in 2012. The property had cost Wetzel $150,000 when it was purchased in 2008.

(a) Compute the amount of gross profit realized each year, assuming Wetzel uses the cost-recovery method.

Year Gross Profit Realized
2010 = ?
2011 = ?
2012 = ?

(b) Compute the amount of gross profit realized each year, assuming Wetzel uses the installment-sales method.

Year Gross Profit Realized
2010 = ?
2011 = ?
2012 = ?

Explanation / Answer

Under the cost recovery method no gross profit is recognized until the cost is exceeded by collections. So the gross profit is: 2010 0 2011 13,600 (101,800+61,800-150,000) 2012 36,400 Under the installment method an amount equal to the overall gross profit % (25% 50,000/200,000) is recognized every year. 2010 25,450 (101,800* 25%) 2011 15,450 (61,800* 25%)' 2012 9,100 (36,400 * 25%)

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