Reference no: EM133070548
Question - The following data were taken from the records of Miguel Incorporated on December 31, 2018. Miguel exclusively sells merchandise on installment basis and uses the installment method:
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|
2016
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2017
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2018
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|
Installment sales
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5,700,000
|
7,900,000
|
9,000,000
|
|
Cost Ratio
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65%
|
60%
|
70%
|
|
Operating Expenses
|
360,000
|
420,000
|
510,000
|
|
Installment receivable as of December 31 from:
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|
2016 sales
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4,300,000
|
2,800,000
|
1,500,000
|
|
2017 sales
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6,300,000
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4,600,000
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|
2018 sales
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|
|
7,500,000
|
In 2018, the company wrote-off installment receivable of 120,000 from 2016 sales and 80,000 from 2017 sales. The related merchandise was repossessed but is damaged beyond repair thus their fair value is zero. The buyers who acquired the merchandise could not be located by the company when they went for questioning. According to the buyer's relatives the buyers went into hiding. Because of anger towards what happened to the repossessed merchandise, the accountant did not record these transactions.
Also in 2018, a costumer defaulted and the repossessed the merchandise. The merchandise repossessed has a fair market value of 180,000 at the time of repossession. This merchandise was sold in 2017 and at the time of repossession, the costumer has still has a balance of 300,000.
The entry made to recognize this repossession was as follows:
Debit inventory of 200,000
Debit operating expenses for the Loss on Repossession of 100,000
Credit to Installment Receivable 2017 of 300,000
1. Determine the realized gross profit in 2018.
2. Determine the net income in 2018.