Problem 5–15
Requirement 1
2018 cost recovery % :
$180,000
2019 cost recovery %:
$280,000
2018 gross profit:
Cash collection from 2018 sales = $120,000 x 40% = $48,000
2019 gross profit:
Requirement 2
2018
Installment receivables…………………………………………… 300,000
To record installment sales
Cash ………………………………………………………. 120,000
To record cash collections from installment sales
Deferred gross profit………………………………………………. 48,000
To recognize gross profit from installment sales
Problem 5–15 (continued)
2019
Installment receivables…………………………………………… 400,000
Inventory…………………………………………………………… 280,000
To record installment sales
Cash…………………………………………………………………….. 250,000
To record cash collections from installment sales
Deferred gross profit………………………………………………. 85,000
To recognize gross profit from installment sales
Requirement 3
Date Cash Collected Cost Recovery Gross Profit
2018
2019
2018 sales $100,000 $ 60,000 $40,000
Problem 5–15 (concluded)
2018
Installment receivables…………………………………………… 300,000
Inventory…………………………………………………………… 180,000
To record installment sales
To record cash collection from installment sales
2019
Installment receivables…………………………………………… 400,000
To record installment sales
To record cash collection from installment sales
To recognize gross profit from installment sales
Problem 5–16
Requirement 1
Total profit = $500,000 – 300,000 = $200,000
8/31/16 8/31/17 8/31/18 8/31/19 8/31/20
b. Installment sales method
Problem 5–16 (continued)
Requirement 2
Point of
Delivery
Installment
Sales Cost Recovery
Installment receivable 500,000
To record sale on 8/31/16
Installment receivable 500,000 500,000
To record sale on 8/31/16
Cash 100,000 100,000 100,000
To record cash collections
(Entry made each Aug. 31)
To record gross profit
(Entry made each Aug. 31)
To record gross profit
(Entry made 8/31/19 &
8/31/20)
Problem 5–16 (concluded)
Requirement 3
Point of
Delivery
Installment
Sales
Cost
Recovery
December 31, 2018
Assets
December 31, 2019
Assets
Installment receivables
300,000 300,000
300,000
Problem 5–17
Requirement 1
All jobs consist of four equal payments: one payment when the job is completed
Bluebird:
Job completed in 2016, so down payment made in 2016, another payment in
Twenty-five percent gross profit ratio implies cost of 75% x $800,000 =
$600,000.
Cost recovery method gross profit: Payments in 2016 and 2017 have already
recognized in 2018.
Installment sales method gross profit: $200,000 payment x 25% gross profit ratio
= $50,000 of gross profit recognized in 2018.
PitStop:
Job completed in 2015, so down payment made in 2015, another payment in
Thirty-five percent gross profit ratio implies cost of 65% x $600,000 =
$390,000.
Cost recovery method gross profit: Payments in 2015, 2016, and 2017 of a total
$150,000 will be applied to gross profit.
= $52,500 of gross profit recognized in 2018.
Problem 5–17 (concluded)
Totals:
Cost recovery method: $0 (Bluebird) + 150,000 (PitStop) = $150,000.
Requirement 2
If Dan is focused on 2018, he would not be happy with a switch to the
installment sales method, because that would produce gross profit of only
profit associated with the PitStop job gets recognized, so 2018 looks more
profitable under the cost recovery method.
Problem 5–18
Requirement 1
Year Gross profit recognized
2018 – 0 –
Requirement 2
2018 2019 2020
To record cash collections
Construction in progress
(gross profit)
1,800,000
Cost of construction
(costs incurred)
2,400,000 3,600,000 2,200,000
contracts (contract price)
To record gross profit
Problem 5–18 (concluded)
Requirement 3
Balance Sheet 2018 2019
Current assets:
Accounts receivable $ 200,000 $ 600,000
Requirement 4
2018 2019 2020
Costs incurred during the year $2,400,000 $3,800,000
$3,200,000
Year Gross profit recognized
2018 – 0 –
Requirement 5
2018 2019 2020
Costs incurred during the year $2,400,000 $3,800,000
$3,900,000
2020 200 ,000
Total project loss $(100 ,000)