Potters Home Goods sells furniture and electronic items. The majority of its bus
ID: 2466831 • Letter: P
Question
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.
2014
2015
2016
Installment sales (net of interest)
$124,000
$138,000
$145,000
Gross profit percentage
36%
39%
38%
Cash collections on installment sales:
Principal 2014
$59,300
$38,200
$18,500
Principal 2015
65,400
33700
Principal 2016
73450
Interest 2014
7,100
12,400
1,250
Interest 2015
6,150
15600
Interest 2016
$6,400
Instructions: Prepare the journal entries for the years 2014-2016 assuming Potters uses the installment sales method for revenue recognition and records receivables net of interest.
2014
2015
2016
Installment sales (net of interest)
$124,000
$138,000
$145,000
Gross profit percentage
36%
39%
38%
Cash collections on installment sales:
Principal 2014
$59,300
$38,200
$18,500
Principal 2015
65,400
33700
Principal 2016
73450
Interest 2014
7,100
12,400
1,250
Interest 2015
6,150
15600
Interest 2016
$6,400
Explanation / Answer
Journal entries for the year 2014: Installment Receivables $ 124,000 Inventory $ 79,360 Deffered Gross profit $ 44,640 (Being installment sales recorded @ 36% of gross profit ) Cash $66,400 Installment Receivables $ 66,400 (Being cash collected from installment sales) Deferred Gross profit $23,904 Gross Profit on installment sales $ 23,904 (Being proportionate deferred gross profit recognized) Deferred Gross profit=($66,400*36%) Journal entries for the year 2015 Installment Receivables $ 138,000 Inventory $ 84,180 Deffered Gross profit $ 53,820 (Being installment sales recorded @ 39% of gross profit ) Cash $ 50,600 Installment Receivables $ 50,600 (Being cash collected from installment sales for the year 2014) Deferred Gross profit $ 18,216 Gross Profit on installment sales $18,216 (Being proportionate deferred gross profit recognized) Deferred Gross profit=($50,600*36%)=$18,216 Cash $ 71,550 Installment Receivables $ 71,550 (Being cash collected from installment sales for the year 2015) Deferred Gross profit $ 27,905 Gross Profit on installment sales $27,905 (Being proportionate deferred gross profit recognized) Deferred Gross profit=($71,550*39%)=$27,905 Journal entries for the year 2016: Installment Receivables $145,000 Inventory $ 89,900 Deffered Gross profit $ 55,100 (Being installment sales recorded @ 38% of gross profit ) Cash $ 19,750 Installment Receivables $ 19,750 (Being cash collected from installment sales for the year 2014) ($18,500+$1,250)=$19,750 Deferred Gross profit $ 7,110 Gross Profit on installment sales $ 7,110 (Being proportionate deferred gross profit recognized) Deferred Gross profit=($19,750*36%)=$7,110 Cash $ 49,300 Installment Receivables $49,300 (Being cash collected from installment sales for the year 2015) Installment sales cash collected: ($33,700+$15,600)=$49,300 Deferred Gross profit $19,227 Gross Profit on installment sales $19,227 (Being proportionate deferred gross profit recognized) Deferred Gross profit=($49,300*39%)=$19,227 Cash $79,850 Installment Receivables $ 79,850 (Being cash collected from installment sales for the year 2016) Installment sales cash collected: ($73,450+$6,400)=$79,850 Deferred Gross profit $ 30,343 Gross Profit on installment sales $ 30,343 (Being proportionate deferred gross profit recognized) Deferred Gross profit=($79,850*38%)=$30,343
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