# (Solved Homework): Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following inf…

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Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following information is for 2014 and 2015. Compute the amount of realized gross profit recognized in 2014 and the balance in the deferred Gross Profit account on 31 DEC 2014. Compute the amount of realized gross profit recognized in 2015 and the balance in the deferred Gross Profit account on 31 DEC 2015. Prepare all journal entries required in 2015 On 1 January 2014, Wetzel Company sold property for \$530,000. The property had cost Wetzel \$365,700 when it was purchased in 2012. The note will be collected as follows: (a1) Compute the amount of gross profit Wetzel will recognize in 2014, assuming Wetzel uses the cost-recovery method. (a2) Compute the amount of gross profit Wetzel will recognize in 2015, assuming Wetzel uses the cost-recovery method. (a3) Compute the amount of gross profit Wetzel will recognize in 2016. assuming Wetzel uses the cost-recovery method. (b1) Compute the amount of gross profit Wetzel will recognize in 2014, assuming Wetzel uses the installment sales method. (b2) Compute the amount of gross profit Wetzel will recognize in 2015, assuming Wetzel uses the installment sales method. (b3) Compute the amount of gross profit Wetzel will recognize in 2016. assuming Wetzel uses the installment sales method.

Problem 1: Coffin Corporation

 2014 2015 Realized gross profit recognized \$ 123070 280500 (123380+157120) Balance in deferred gross profit account \$ 138818 241038 (15438+225600)

Calculations:

 2014 Installment sales 844800 Cost of installment sales 582912 Gross profit (844800 – 582912) 261888 Gross profit % (261888 / 844800) 31% Cash collections 2014 sales 397000 Realized gross profit recognized in 2014 (31% x 397000) 123070 Balance in deferred gross profit account 2014 (261888 – 123070) 138818 Cash collections on 2014 sales in 2015 398000 Realized gross profit recognized on 2014 sales in 2015 (31% x 398000) 123380 Balance in deferred gross profit account 2015 (138818 – 123380) 15438
 2015 Installment sales 1196000 Cost of installment sales 813280 Gross profit (1196000 – 813280) 382720 Gross profit % (382720 / 1196000) 32% Cash collections 2015 sales 491000 Realized gross profit recognized in 2015 (32% x 491000) 157120 Balance in deferred gross profit account 2015 (382720 – 157120) 225600 Total balance in deferred gross profit account on 2015 (15438 + 225600) 241038

Journal entries:

 Account Titles and Explanation Debit Credit 2014 Installment receivables 844800 Installment sales 844800 (To record installment sales) Cost of installment sales 582912 Inventory 582912 (To record cost of sales) Cash 397000 Installment receivables 397000 (To record installments collected) Installment sales 844800 Cost of installment sales 582912 Deferred gross profit 261888 (To record deferred gross profit) Deferred gross profit 123070 Gross profit on installment sales 123070 (To record realized gross profit recognized) 2015 Installment receivables 1196000 Installment sales 1196000 (To record installment sales) Cost of installment sales 813280 Inventory 813280 (To record cost of sales) Cash (398000 + 491000) 889000 Installment receivables 889000 (To record installments collected) Installment sales 1196000 Cost of installment sales 813280 Deferred gross profit 382720 (To record deferred gross profit) Deferred gross profit 280500 Gross profit on installment sales (123380 + 157120) 280500 (To record realized gross profit recognized)

Note: Though journal entries for 2015 only are requested, the same have been provided for both years for better understanding.

Pages (550 words)
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