Intermediate accounting Stice Stice 19th edition Problem 8-40 Page 8-50 Potters
ID: 2456628 • Letter: I
Question
Intermediate accounting Stice Stice 19th edition Problem 8-40 Page 8-50 Potters Home Goods sells furniture and electronic items. The majority of its business is on credit, and the following information is available relating to sales transactions for 2014, 2015, and 2016. Installment sales (net of interest) 2014 $124,000 2015 $138,000 2016 $145,000 Gross profit percentage 2014 36% 2015 39% 2016 38% Cash collections on installment sales: Principal 2014 2014 $59,300 2015 $38,200 2016 $18,500 Principal 2015 2015 65,400 2016 33,700 Principal 2016 2016 73,450 Interest 2014 2014 7,100 2015 12,400 2016 1,250 Interest 2015 2015 6,150 2016 15,600 Interest 2016 2016 6,400 Instructions: prepare the journal entries for the years 2014-2016 assuming Potter's uses the installment sales method for revenue recognition and records receivables net of interest.
Explanation / Answer
WN- 1 – Calculation of COGS
Particular
2014
2015
2016
Instalment Sale
124,000
138,000
145,000
GP
36 %
39 %
38 %
COGS %
64 %
61 %
62 %
COGS
79,360
84,180
89,900
GP
44,640
53,820
55,100
WN-2 – Deferment of GP
Particular
2014
2015
2016
Cash Received
59,300
38,200
18,500
Total Cash Collection Principal
59,300
38,200
18,500
Realised Gross Profit of 2014
21,348
13,752
6660
Journal of 2014 for Revenue recognition
Account Details and explanation
Debit
Credit
Instalment Receivable
124,000
Instalment Sale
124,000
To record the instalment sale at the time of sale
Cost of Goods Sold
79,360
Inventory
79,360
To record the COGS at the time of sale
Instalment Sale
124,000
Cost of Goods Sold
79,360
Deferred Gross Profit
44,640
To record the deferment of revenue of 2014.
Cash
59,300
Instalment Receivable
59,300
To record the collection of cash in the year 2014 sale
Deferred Gross Profit
21,348
Gross Profit on instalment sale
21,348
To record the realisation of gross profit
Journal of 2015 for Revenue recognition
Account Details and explanation
Debit
Credit
Instalment Receivable
138,000
Instalment Sale
138,000
To record the instalment sale at the time of sale
Cost of Goods Sold
84,180
Inventory
84,180
To record the COGS at the time of sale
Instalment Sale
138,000
Cost of Goods Sold
84,180
Deferred Gross Profit
53,820
To record the deferment of revenue of 2014.
Cash
103,600
Instalment Receivable
103,600
To record the collection of cash in the year 2014 sale
Deferred Gross Profit
39,258
Gross Profit on instalment sale
[(38200 x0.36 ) + (65,400 x 0.39)]
39,258
To record the realisation of gross profit
Journal of 2016 for Revenue recognition
Account Details and explanation
Debit
Credit
Instalment Receivable
145,000
Instalment Sale
145,000
To record the instalment sale at the time of sale
Cost of Goods Sold
89,900
Inventory
89,900
To record the COGS at the time of sale
Instalment Sale
145,000
Cost of Goods Sold
89,900
Deferred Gross Profit
55,100
To record the deferment of revenue of 2014.
Cash
125,650
Instalment Receivable
125,650
To record the collection of cash in the year 2014 sale
Deferred Gross Profit
47,714
Gross Profit on instalment sale
[(18500 x0.36 ) + (33700 x 0.39) + (73,450 x 0.38)]
47,714
To record the realisation of gross profit
Note – (‘1) Deferred revenue will be recognised on the basis of principal cash collection in each year .
Particular
2014
2015
2016
Instalment Sale
124,000
138,000
145,000
GP
36 %
39 %
38 %
COGS %
64 %
61 %
62 %
COGS
79,360
84,180
89,900
GP
44,640
53,820
55,100
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