E18–17B (15–25 minutes)
(a) Computation of gross profit to be recognized under completed-contract
method:
No computation necessary. No gross profit to be recognized prior to
completion of contract.
E18–18B (15–25 minutes)
BEARING CONSTRUCTION COMPANY
Income Statement (partial)
Year Ended December 31, 2014
_________________________________________________________________
E18-19B (15–20 minutes)
(a) Computation of gross profit recognized:
2014
2015
$70,000 X 15%*
$10,500
$201,000 X 15%*
$30,150
$10,500
$56,070
E18–20B (15–20 minutes)
(a) Deferred Gross Profit—2012 ……………………… 34,700*
Deferred Gross Profit—2013 ……………………… 49,400**
Deferred Gross Profit—2014 ……………………… 30,000***
Realized Gross Profit …………………………. 114,100
E18–21B (15–20 minutes)
Gross profit ratio—2014: ($600,000 – $480,000) ÷ $600,000 = 20%
Gross profit ratio—2015: ($530,000 – $442,800) ÷ $530,000 = 18%
(a) Balance, December 31, 2014:
Deferred Gross Profit Account—2014 Installment Sales
E18–224B (10–15 minutes)
UPPER WORLD CORPORATION
Income before Income Taxes on Installment-Sale Contract
For the Year Ended December 31, 2014
E18–23B (10–15 minutes)
(a) Realized gross profit recognized in 2015 under the installment method of
16.67% respectively.
2015
2015
E18–23B (Continued)
2. as a deferred credit between liabilities and stockholders’ equity. This
treatment is criticized because there is no obligation to outsiders; or
3. as an adjustment or offset to the related Installment Accounts
Receivable. This is because the deferred gross profit is a part of
revenue from installment sales not yet realized. The related receivable
will be overstated unless the deferred gross profit is deducted. On the
E18–24B (15–20 minutes)
(a) Computation of gross profit realized—cost recovery method:
Cash
Original
Cost
Balance of
Unrecovered
Gross
Profit
E18–25B (10–15 minutes)
1. Repossessed Merchandise ………………………………….. 475
Deferred Gross Profit …………………………………………… 720*
Loss on Repossession ………………………………………… 605
2. Repossessed Merchandise …………………………………… 850
Deferred Gross Profit …………………………………………… 676*
Installment Accounts Receivable ……………………. 1,280**
E18–26B (15–20 minutes)
Cash ……………………………………………………………………………. 700
Installment Accounts Receivable ……………………………. 700
(To record the collection of cash on installment
*E18-27B (14–18 minutes)
Note: For each part below, the present value of the notes receivable is
$141,191, calculated as follows:
$40,000 X 3.60478 (ordinary and 5 payments, 12%)
(a) Cash ……………………………………………………………….. 25,000
2. $20,000 cash received from down payment.