Reference no: EM13841216

Problem 1: J.C. Clendenin accounts for installment sales by reporting income in the proportion of the collections to the selling price.

On December 31 20X3 the books show account balances as follows:

Installment Contract Receivable		Deferred Gross Profit
20X1	$10,000	20X1	$8,000
20X2	40,000	20X2	26,000
20X3	90,000	20X3	105,000

The gross profit rate were 20X1 35%, 20X2 30%, 20X3 40%

1. What adjusting entries are required on December 31, 20X3?

2. How much was collected in 20X3 on accounts receivable each year?

Problem 2: The Warren Furniture Company reports income on the installment basis and uses perpetual inventory accounts. The following data are available:

Sales Year	% gross profit	Installment Rec. Jan 1, 20X7	Collected During 20X7	Installment Rec. On dec 31, 20X7
20X5	46%	$30,000	$30,000	-
20X6	42%	50,000	34,000	$160,000
20X7	40%	-	60,000	140,000

 To this data, prepare an 20X7 journal entries, including those required for the recognition of gross profit at the end of the year.