On July, 1, 20x8, Venable Company sold $300,000 worth of merchandise (costing $2

Question

On July, 1, 20x8, Venable Company sold $300,000 worth of merchandise (costing $200,000) on account. Collections of $75,000 are scheduled for October 1, 20x8, and January 1, April 1, and July 1, 20x9.     Assuming that the installment sales method is appropriate:

Required:

Give the entries for Venable assuming that all installment amounts are collected as scheduled and that Venable recognizes profit on a proportionate-to-collections basis.

Give the entries for Venable assuming that all installment amounts are collected as scheduled and that Venable recognizes profit on a cost recovery basis.

Give the entries for Venable assuming that only the first installment is collected and that the merchandise was repossessed on February 1, 20x9, when its estimated fair value was $180,000. Assume that profit is recognized on a proportionate-to-collections basis.

How should results of installment sales be presented in the income statement?

Please show steps and calculations. Thanks.

Explanation / Answer

Common entries for all 3 parts July 1 2018 Instalments receivable Dr 300000                 Instalments sales Cr 300000 ( To record sales on instalments) July 1 2018 Cost of goods sold Dr 200000                  Inventory Cr 200000 ( To record COGS ) July 1 2018 Instalments sales Dr 300000              Cost of goods sold Cr 200000              Deferred Gross Profit Cr 100000 ( To recogmise deferred profit) Gross profit on sales = 100000 /300000*100 = 33.33% recording on proportionate collection basis October 1 2018 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments) Deferred gross profit Dr 25000                   Gross profit on instalments Cr 25000 ( To record gross profit on instalmentrs) January 1 2019 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments) Deferred gross profit Dr 25000                   Gross profit on instalments Cr 25000 ( To record gross profit on instalmentrs) April 1 2019 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments) Deferred gross profit Dr 25000                   Gross profit on instalments Cr 25000 ( To record gross profit on instalmentrs) July 1 2019 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments) Deferred gross profit Dr 25000                   Gross profit on instalments Cr 25000 ( To record gross profit on instalmentrs) recording on cost recovery basis October 1 2018 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments adjusted with COGS) January 1 2019 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments adjusted with COGS) April 1 2019 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments adjusted with COGS and deferred gorss profit) April 1 2019 Deferred gross profit Dr 25000                   Gross profit on instalments Cr 25000 ( To record Gross profit aftr recovering COGS - 200000 - 75000-75000-50000) July 1 2019 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments) Deferred gross profit Dr 75000                   Gross profit on instalments Cr 75000 ( To record gross profit on instalments as COGS has been recovered and entire amount is Gross profit) If goods are repossed October 1 2018 Cash Dr 75000                  Instalments receivable Cr 75000 ( To record collection of instalments) Deferred gross profit Dr 25000                   Gross profit on instalments Cr 25000 ( To record gross profit on instalmentrs) February 1 2019 Merchandise repossessed ( Fair value) Dr 180000 Deferred gross profit ( 225000*33.33%) Dr 75000            Instalments receivable Cr 225000            Gain on repossession of merchandise) Cr 30000 ( To record repossession of goods) In the income statement only the realised gross profit income will be depicted hence gross profit on instalments will be shown in the income statement all the other accounts will be shown in balance sheet Instalment receivable Cash Deferred gross profit are all balance sheet accounts

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