[Jasminekoko]

Please explain why installment receivable are 550,000 for year 2 and 100,000 for year 1? I can’t figure out by the solution given. Please help. Appreciate very much.

Since there is no reasonable basis for estimating the degree of collectibility, Astor Co. uses the installment method of revenue recognition for the following sales:

Sales Year 2: $ 900,000 Year 1:$ 600,000

Collections from:

Year 1 sales 100,000 in yr 2

---

200,000 in yr 1

Year 2 sales 300,000 in yr 2

---

-0 in year 1

Accounts written off:

Year 1 sales 150,000 in yr 2

---

50,000 in yr 1

Year 2 sales 50,000 in yr 2

---

0 –

Gross profit percentage 40%: year 2 30%: year 1

What amount should Astor report as deferred gross profit in its December 31, Year 2, balance sheet for the Year 1 and Year 2 sales?

a. $225,000

b. $250,000

c. $150,000

d. $160,000

[Determined CPA]

Say you sold 100,000 worth of an item. Of that, you collected, in your hand, 40,000. That would leave you with a 60,000 accounts receivable that you would have to put on the books.

Apply that basic concept to this problem.

year 2 A/R

Sales – collections = A/R

sales = 900,000 –

collections = the 300,000 collected in year 2 from year 2 sales – 50,000 written off in year 2 from year 2 sales

900,000 – 300,000 – 50,000 = 550,000

year 1 A/R

Sales – collections = A/R

sales = 600,000

collections = the 200,000 collected in year 1 from year 1 sales – the 100,000 collected in year 2 from year 1 sales – 150,000 written off in year 1 from year 1 sales – 50,000 written off in year 2 from year 1 sales

600,000 – 200,000 – 100,000 – 50,000 – 150,000 = 100,000

Remember, just because you collect something in a prior year, it still applies to the year of sale!!

hope this helps.

A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!

Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.

[Jasminekoko]

Hi DeterminedCPA, thanks very much. So collection for year 1 sales including collection in yr 1 and yr 2? This was what I got:

Collection in yr 2 = 100,000 + 300,000

Collection in yr1= 200,000

I know how to do the rest Please explain why this is not correct for the collections only? Many many thanks again.

[Author]

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