Question

4.Dana corporation is engaged in different line of businesses however, it has discontinued the transport branch due to the repeated losses from this lie of business. Dana uses installment method of recognizing revenue the following information related to installment sales is collected to assist the preparation of financial statement of YR 10.Year-end balance Dec. 31, YR 8 Dec.31, Yr. 9 Dec.31, Yr. 10 Installment Rec.Yr8 1,500,000 Installment REC.YR 9 2,000,000 Installment Rec.Yr. 10 3,200,000 Gross profit rate Additional information: BR 2,500,000 20% BR 2,000,000 4,000,000 40% BR​

Answer 1

The accounting profit for a firm with $1 million in sales revenue, and expenses amounting to $600,000 for labor, $150,000 for capital, and $200,000 for materials, would be $50,000 after deducting all expenses from the revenue.

Step-by-step explanation:

The question pertains to the accounting treatment and preparation of financial statements in the context of the installment sales method used by a corporation. The specific focus is on how to report gross profit from installment sales in a scenario where the company has discontinued a line of business due to consistent losses. The illustration given is intended to demonstrate the calculation of accounting profit by deducting expenses from sales revenue.

To answer the self-check question: A firm had sales revenue of $1 million last year. It spent $600,000 on labor, $150,000 on capital, and $200,000 on materials. The firm's accounting profit would be calculated by subtracting the total expenses from the sales revenue. Therefore, the accounting profit can be calculated as follows:

Sales Revenue: $1,000,000
Labor Expenses: -$600,000
Capital Expenses: -$150,000
Materials Expenses: -$200,000
Accounting Profit: $1,000,000 - $600,000 - $150,000 - $200,000 = $50,000

Answer 2

Step-by-step explanation:

To determine the revenue recognized on installment sales and to prepare the financial statements for Year 10, we can follow these steps:

1. Calculate the gross profit on installment sales for Year 10:

Gross Profit = Gross Profit Rate * Installment Receivables for Year 10

Gross Profit = 40% * 3,200,000

Gross Profit = 1,280,000

2. Determine the cumulative gross profit recognized for Year 8, Year 9, and Year 10:

Cumulative Gross Profit = Gross Profit for Year 8 + Gross Profit for Year 9 + Gross Profit for Year 10

Cumulative Gross Profit = 0 + 0 + 1,280,000

Cumulative Gross Profit = 1,280,000

3. Calculate the total installment sales made during Year 8, Year 9, and Year 10:

Total Installment Sales = Installment Receivables for Year 8 + Installment Receivables for Year 9 + Installment Receivables for Year 10

Total Installment Sales = 1,500,000 + 2,000,000 + 3,200,000

Total Installment Sales = 6,700,000

4. Determine the gross profit recognized on installment sales during Year 8 and Year 9:

Gross Profit Year 8 and 9 = Cumulative Gross Profit - Gross Profit for Year 10

Gross Profit Year 8 and 9 = 1,280,000 - 1,280,000

Gross Profit Year 8 and 9 = 0

5. Calculate the year-wise gross profit recognized for the financial statements:

Year 8 Gross Profit = Gross Profit Year 8 and 9 - Gross Profit for Year 8

Year 8 Gross Profit = 0 - 0

Year 8 Gross Profit = 0

Year 9 Gross Profit = Gross Profit Year 8 and 9 - Gross Profit for Year 9

Year 9 Gross Profit = 0 - 0

Year 9 Gross Profit = 0

Year 10 Gross Profit = Gross Profit for Year 10

Year 10 Gross Profit = 1,280,000

6. Determine the revenue recognized on installment sales for the financial statements:

Year 8 Revenue = Gross Profit Year 8 and 9 + Gross Profit for Year 8

Year 8 Revenue = 0 + 0

Year 8 Revenue = 0

Year 9 Revenue = Gross Profit Year 8 and 9 + Gross Profit for Year 9

Year 9 Revenue = 0 + 0

Year 9 Revenue = 0

Year 10 Revenue = Gross Profit for Year 10

Year 10 Revenue = 1,280,000

Now, you can use the above information to prepare the financial statements for Year 10, taking into account the revenue recognized and any other relevant financial data required.