Question

RanTech had credit sales of $100,000 in the year 2010 which required use of the installment method. RanTech's cost of merchandise sold was $60,000 (RanTech uses the perpetual inventory system). RanTech collected cash related to the installment sales of $35,000 in 2010 and $30,000 in 2011.

(In your calculations, ignore interest charges. Enter an appropriate description when entering the transactions in the journal. Dates must be entered in the format dd/mmm (ie. January 1 would be 01/Jan)).

Instructions are below:

1) Provide journal entries related to the installment sales for 2010. (Assume all transactions occur on December 31. Please make sure your final answer(s) are accurate to 2 decimal places.)

2) Give journal entries related to installment sales for 2011. (Assume all transactions occur on December 31. Please make sure your final answer(s) are accurate to 2 decimal places.)

3) What is the ending 2010 balance in the following accounts? (Please make sure your final answer(s) are accurate to the nearest whole number.)

i. Installment accounts receivables

ii. Sales

iii. Cost of goods sold

iv. Deferred gross profit on installment sales

(Thank you for your help. Please try to show your work to help me learn the concepts)

Answer 1

Answer Part 1 & 2: Journal Entries

Date	Particulars	Amount Dr	Amount Cr
31 Dec 2010	Installment Receivables A/c	100000
	To Installment Sales		100000
31 Dec 2010	Cost of goods sold	60000
	To Inventory		60000
	Narration: Entry at the time of sale
31 Dec 2010	Installment Sales A/c	100000
	To Cost of Goods Sold		60000
	To Deferred Gross Profit		40000
	Narration: The related revenue is deferred
31 Dec 2010	Cash A/c	35000
	To Installment Receivables		35000
	Narration: First Installment received
31 Dec 2010	Deferred Gross Profit	14000
	To Gross Profit on Installment Sales		14000
	Narration: Value of gross profit in instalment is 35000 * (40000 / 100000)
31 Dec 2011	Cash A/c	30000
	To Installment Receivables		30000
	Narration: Second Installment received
31 Dec 2011	Deferred Gross Profit	12000
	To Gross Profit on Installment Sales		12000
	Narration: Value of gross profit in instalment is 30000 * (40000 / 100000)

Answer - 3

I) Instalment account receivable: Balance on 31/Dec /2010 is $65000

Dr					Cr
Date	Particulars	Amount	Date	Particulars	Amount
31 Dec 2010	Installment Sales A/c	100000	31 Dec 2010	Cash A/c	35000
			31 Dec 2010	Closing Balance (b/f)	65000
	Total	100000			100000

2) Cost of Goods Sold: Balance on 31/Dec/2010 is Nil

Dr					Cr
Date	Particulars	Amount	Date	Particulars	Amount
31 Dec 2010	Inventory A/c	60000	31 Dec 2010	Instalment Sales	60000
	Total	60000			60000

3) Deferred Gross Profit on Installment: Balance on 31/Dec/2010 is $26000

Dr					Cr
Date	Particulars	Amount	Date	Particulars	Amount
31 Dec 2010	Instalment Sales	14000	31 Dec 2010	Installment Sales A/c	40000
31 Dec 2010	Closing Balance (b/f)	26000
	Total	14000			40000