Chapter 18 Essay

Words: 992
Pages: 4

Organic Growth Company is presently testing a number of new agricultural seeds that it has recently harvested. To stimulate interest, it has decided to grant to five of its largest customers the unconditional right of return to these products if not fully satisfied. The right of return extends for 4 months. Organic Growth sells these seeds on account for $1,500,000 on January 2, 2012. Companies are required to pay the full amount due by March 15, 2012.

(a) Prepare the journal entry for Organic Growth at January 2, 2012, assuming Organic Growth estimates returns of 20% based on prior experience. (Ignore cost of goods sold.)
(b) Assume that one customer returns the seeds on March 1, 2012, due to unsatisfactory performance.
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(b) For 2011, show how the details related to this construction contract would be disclosed on the balance sheet and on the income statement.

Coffin Corporation appropriately uses the installment-sales method of accounting to recognize income in its financial statements. The following information is available for 2010 and 2011.

2010 2011
Installment sales $900,000 $1,000,000
Cost of installment sales 594,000 680,000
Cash collections on sales of 2010 370,000 350,000
Cash collections on sales of 2011 -0- 450,000

(a) Compute the amount of realized gross profit recognized in each year.

(b) Prepare all journal entries required in 2011.

Swift Corp., a capital goods manufacturing business that started on January 4, 2010, and operates on a calendar-year basis, uses the installment-sales method of profit recognition in accounting for all its sales. The following data were taken from the 2010 and 2011 records.

2010 2011
Installment sales $480,000 $620,000
Gross profit as a percent of costs 25% 28%
Cash collections on sales of 2010 $130,000 $240,000
Cash collections on sales of 2011 -0- $160,000