John Corp appropriately uses the installment method of accounting to recognize i

Question

John Corp appropriately uses the installment method of accounting to recognize income in its financial statements. Pertinent data relating to this method of accounting includes: installment sales totaled $400,000 for 2013 and $500,000 for 2014; cost of sales were $260,000 for 2013 and $300,000 for 2014: in 2013 John collected $280,000 from 2013 sales; in 2014 John collected $100,000 from 2013 sales and $300,000 from 2014 sales. What amount should John report as realized gross profit on the 2014 income statement?

Explanation / Answer

John Corp appropriately uses the installment method of accounting to recognize income in its financial statements. Pertinent data relating to this method of accounting includes: installment sales totaled $400,000 for 2013 and $500,000 for 2014; cost of sales were $260,000 for 2013 and $300,000 for 2014: in 2013 John collected $280,000 from 2013 sales; in 2014 John collected $100,000 from 2013 sales and $300,000 from 2014 sales. What amount should John report as realized gross profit on the 2014 income statement?

Gross Profit % in 2013 = (400000-260000)/400000 = 35%

Gross Profit % in 2014 = (500000-300000)/500000 = 40%

Realized gross profit on the 2014 income statement = 100000*35% + 300000*40%

Realized gross profit on the 2014 income statement= $ 155000

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