Question:
Charter Corporation, which began business in 2013, appropriately uses the installment sales method of
accounting for its installment sales. The following data were obtained for sales made during 2013 and
2014:
Required:
1. How much gross profit should Charter recognize in 2013 and 2014 from installment sales?
2. What should be the balance in the deferred gross profit account at the end of 2013 and 2014?
Answer:
Requirement 1
2013 cost recovery %:
$234,000
= 65% (gross profit % = 35%)
$360,000
2014 cost recovery %:
$245,000
= 70% (gross profit % = 30%)
$350,000
Charter Corporation, which began business in 2013, appropriately uses the installment sales method of
accounting for its installment sales. The following data were obtained for sales made during 2013 and
2014:
Required:
1. How much gross profit should Charter recognize in 2013 and 2014 from installment sales?
2. What should be the balance in the deferred gross profit account at the end of 2013 and 2014?
Answer:
Requirement 1
2013 cost recovery %:
$234,000
= 65% (gross profit % = 35%)
$360,000
2014 cost recovery %:
$245,000
= 70% (gross profit % = 30%)
$350,000
