Question

3. The following information pertains to the Lolan company’s records about deferred gross profit accounts: December 31, 2008December 31 2009 December 31 2010 Deferred gross profit: From 2008 sales ………$ 35,000 $15000 $0 From 2009 sales …………$60,000 $18,000 From 2010 sales…………..$ 90,000 Gross profit rate ………………..45% 30% 25% Assume during 2008,2009 and 2010 total net sales amounted to $750,000, $540,000 and $ 800,000 respectively ;and for each of the year 60% of the net sales were made on installment basis. Instruction (A) 1. Determine the total amount of cash collected in each year 2. Determine the cost of merchandises sold for each year 3. Determine the installment accounts receivable and balance to be reported in each year. (B) Using the cost recovery method repeat the above instruction

Answer 1

1. Total Cash Collected:

2008: $675,000

2009: $378,000

2010: $720,000

2. Cost of Merchandise Sold:

2008: $385,000

2009: $378,000

2010: $600,000

3. Installment Accounts Receivable and Balance Reported:

2008:

Installment Accounts Receivable: $30,000

Balance Reported: $5,000

2009:

Installment Accounts Receivable: $27,000

Balance Reported: $3,000

2010:

Installment Accounts Receivable: $240,000

Balance Reported: $60,000

(B) Using Cost Recovery Method:

The installment accounts receivable for each year will be the deferred gross profit amounts. No balance would be reported.