Houser Appliances accounts for all sales of its merchandise on the installment basis. Following is the unadjusted trial balance at 12/31/12.
Cash $45,000
Installment accounts receivable—2010 20,000
Installment accounts receivable—2011 50,000
Installment accounts receivable—2012 90,000
Inventory 27,400
Repossessed merchandise 4,600
Accounts payable $ 37,600
Deferred gross profit—2010 12,000
Deferred gross profit—2011 26,400
Common stock 125,000
Retained earnings 10,000
Installment sales 120,000
Cost of installment sales 78,000
Loss on repossessions 3,000
Operating expenses 13,000
$331,000 $331,000
Additional information:
2010 gross profit rate: 25%
Total cash receipts during 2012: $118,000
Merchandise sold in 2011 was repossessed in 2012 and the following entry was prepared:
Deferred Gross Profit—2011 2,400
Repossessed Merchandise 4,600
Loss on Repossessions 3,000
Installment Accounts Receivable—2011 10,000
Instructions
(a) What is the gross profit rate for 2011? Show supporting computations.
(b) What is the gross profit rate for 2012? Show supporting computations.
(c) Of the total cash receipts in 2012, how much represents collections from installment sales of: (Show supporting computations.)
(1) 2010?
(2) 2011?
(3) 2012?
(d) What is the total realized gross profit in 2012? Show supporting computations.
563644
(a) To calculate the gross profit rate for 2011, we need to determine the gross profit and the net sales for that year.
First, let's calculate the gross profit:
Gross Profit = Installment Sales - Cost of Installment Sales
Gross Profit = $120,000 - $78,000
Gross Profit = $42,000
Next, let's calculate the net sales:
Net Sales = Installment Sales - Deferred Gross Profit - Loss on Repossessions
Net Sales = $120,000 - $26,400 - $3,000
Net Sales = $90,600
Now we can calculate the gross profit rate for 2011:
Gross Profit Rate = (Gross Profit / Net Sales) * 100
Gross Profit Rate = ($42,000 / $90,600) * 100
Gross Profit Rate = 46.39%
Therefore, the gross profit rate for 2011 is 46.39%.
(b) To calculate the gross profit rate for 2012, we can use the same formula as in part (a) but with the data for 2012.
Gross Profit = Installment Sales - Cost of Installment Sales
Gross Profit = $120,000 - $78,000
Gross Profit = $42,000
Net Sales = Installment Sales - Deferred Gross Profit - Loss on Repossessions
Net Sales = $120,000 - $26,400 - $3,000
Net Sales = $90,600
Gross Profit Rate = (Gross Profit / Net Sales) * 100
Gross Profit Rate = ($42,000 / $90,600) * 100
Gross Profit Rate = 46.39%
Therefore, the gross profit rate for 2012 is also 46.39%.
(c) To calculate the collections from installment sales in 2012, we need to determine the portion of the cash receipts that corresponds to each year's sales.
(1) Collections from 2010:
Collections from 2010 = Total Cash Receipts * (Installment Accounts Receivable - Deferred Gross Profit) / (Installment Accounts Receivable 2010 + Installment Accounts Receivable 2011 + Installment Accounts Receivable 2012)
Collections from 2010 = $118,000 * ($20,000 - $12,000) / ($20,000 + $50,000 + $90,000)
Collections from 2010 = $118,000 * $8,000 / $160,000
Collections from 2010 = $5,900
(2) Collections from 2011:
Collections from 2011 = Total Cash Receipts * (Installment Accounts Receivable - Deferred Gross Profit) / (Installment Accounts Receivable 2010 + Installment Accounts Receivable 2011 + Installment Accounts Receivable 2012)
Collections from 2011 = $118,000 * ($50,000 - $26,400) / ($20,000 + $50,000 + $90,000)
Collections from 2011 = $118,000 * $23,600 / $160,000
Collections from 2011 = $17,360
(3) Collections from 2012:
Collections from 2012 = Total Cash Receipts * (Installment Accounts Receivable - Deferred Gross Profit) / (Installment Accounts Receivable 2010 + Installment Accounts Receivable 2011 + Installment Accounts Receivable 2012)
Collections from 2012 = $118,000 * ($90,000 - 0) / ($20,000 + $50,000 + $90,000)
Collections from 2012 = $118,000 * $90,000 / $160,000
Collections from 2012 = $66,375
Therefore, the collections from installment sales in 2012 are as follows:
(1) $5,900 represents collections from 2010.
(2) $17,360 represents collections from 2011.
(3) $66,375 represents collections from 2012.
(d) To calculate the total realized gross profit in 2012, we need to consider the gross profit realized from collections of all years.
Total Realized Gross Profit = Gross Profit Rate * Collections from Installment Sales
Total Realized Gross Profit = 46.39% * ($5,900 + $17,360 + $66,375)
Total Realized Gross Profit ≈ 46.39% * $89,635
Total Realized Gross Profit ≈ $41,588
Therefore, the total realized gross profit in 2012 is approximately $41,588.