Ajax Company appropriately accounts for certain sales using the installment sale
ID: 2484823 • Letter: A
Question
Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2016 and 2017 is as follows: 2016 2017 Sales Cost of sales Customer collections on: $220,000 $320,000 32,000 224,000 2016 sales 2017 sales 80,000 60,000 110,000 Required: 1. Calculate the amount of gross profit that would be recognized each year from installment sales. Gross proft 2. Prepare alil necessary journal entries for the year 2016 and 2017, (f no entry ls required for a transaction/avent, select "No journal entry view gertume view transaction tist Journal Entry Worksheet 133000 Record the installment sales of $220,000 2016 "Enter debits before creditsExplanation / Answer
2016
2017
Sales
220,000
320,000
Cost of sales
132,000
224,000
Gross profit
88,000
96,000
Gross profit %
40%
30%
Gross profit
Gross profit
32,000*
57,000**
Gross profit* = 80,000*40% = $32,000
2017 ** = 60,000@40% + 110,000@30% = $57,000
Journal entries
Installment receivable
$220,000
To inventory
132,000
To Deferred gross profit
88,000
Cash
80,000
To installment receivable
80,000
Deferred gross profit
32,000
To Realized gross profit
32,000
2017
Installment receivable
320,000
To inventory
224,000
To Deferred gross profit
96,000
Cash
170,000
To installment account receivable
170,000
Deferred Gross profit
57,000
To Realized gross profit
57,000
3A)
Cash collected
Cost recovery
Gross profit
2016
80,000
80,000
0
2017
2016 sales
60,000
52,000
8,000
2017 sales
110,000
110,000
0
2017 total
170,000
162,000
8,000
Journal entry
Installment receivable
220,000
To inventory
132,000
To Deferred gross profit
88,000
Cash
80,000
To installment receivable
80,000
2017
Installment receivable
320,000
To inventory
224,000
To deferred gross profit
96,000
Cash
170,000
To installment receivable
170,000
Deferred gross profit
8000
To Realized gross profit
8,000
2016
2017
Sales
220,000
320,000
Cost of sales
132,000
224,000
Gross profit
88,000
96,000
Gross profit %
40%
30%
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