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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

ekkarill92 answered 2 years ago
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