Question
In: Accounting
Swift Corp., a capital goods manufacturing business that started on January 4, 2019, and operates on...
Swift Corp., a capital goods manufacturing business that started on January 4, 2019, and operates on a calendar-year basis, uses the cost recovery method of profit recognition in accounting for all its sales. The following data were taken from the 2019 and 2020 records.
2019 2020
Installment sales $800,000 $1,000,000
Cost of sales $600,000 $700,000
Cash collections on sales of 2019 $500,000 $300,000
Cash collections on sales of 2020 –0– $600,000
Instructions: Using cost recovery method
(a) Compute the amount of realized gross profit to be recognized in each year
(b) State where the balance of Unrealized Gross Profit in each year
answer with exel
Solutions
Expert Solution
| 2019 | 2020 | |
| Installment Sale | $8,00,000 | $10,00,000 |
| Cost of Sales | $6,00,000 | $7,00,000 |
| Cash collection 2019 | $5,00,000 | $3,00,000 |
| Cash collection 2020 | $0 | $6,00,000 |
| Under cost Recovery Profit in 2019 | ||
| Under cost Recovery method profit is recoganised after the recovery of the total cost from the collections first | ||
| Total cost | $6,00,000 | |
| Amount Collected | $5,00,000 | |
| Balance Cost to Recover in 2019 | $1,00,000 | |
| Profit Recoganised in 2019 | NIL | |
| Unrealised profit in the year 2019 in the Amount receivable amounting to $300,000 from the customers | ||
| Under cost Recovery Profit in 2020 | ||
| Cost to be Recovered in 2020 | = $100,000 + $ $700,000 | |
| $8,00,000 | ||
| Amount Collected from 2019 | $3,00,000 | |
| Amount Collected from 2020 | $6,00,000 | |
| Amount Collected from 2019 | $3,00,000 | |
| Less: Balance cost 2019 | $1,00,000 | |
| Profit in 2020 | $2,00,000 | |
| Total cost in 2020 | $7,00,000 | |
| Amount Collected | $6,00,000 | |
| Balance cost to recover in 2020 | $1,00,000 | |
| Total Profit Recoganised in 2020 | $2,00,000 | |
| Unrealised profit in the year 2020 in the Amount receivable amounting to $400,000 from the customers |
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