Exercise 18-23 a. What is the realized gross profit?

| November 9, 2018

Exercise 18-23

a.

What is the realized gross profit?

Cash Received

Gross Profit Rate

Gross Profit Realized

2015

b.

Where is the deferred gross profit reported?

c.

What is the realized gross profit?

Date

Cash

Installment Unpaid Bal.

Uncovered Cost

Realized Gross Profit

1/1/2014

12/31/2014

12/31/2015

Exercise 18-23: Installment-sales method and
cost-recovery method, page 1094

Swift Corp., a capital goods
manufacturing business that started on January 4, 2014, and operates on a
calendar-year basis, uses the installment sales method of profit recognition in
accounting for all its sales. The following data were taken from the
2014 and 2015 records.

2014 2015
Installment sales $480,000 $620,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2014 $130,000 $240,000
Cash collections on sales of 2015 –0– $160,000
The amounts given for cash collections
exclude amounts collected for interest charges.
Instructions
(a) Compute the amount of realized
gross profit to be recognized on the 2015 income statement, prepared using the
installment-sales method. (Round percentages to three decimal places.)
(b) State where the balance of Deferred
Gross Profit would be reported on the financial statements for 2015.
(c) Compute the amount of realized
gross profit to be recognized on the income statement, prepared using the
cost-recovery method.

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