What adjusting entries are required

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Problem 1: J.C. Clendenin accounts for installment sales by reporting income in the proportion of the collections to the selling price.

On December 31 20X3 the books show account balances as follows:

Installment Contract Receivable

Deferred Gross Profit

20X1

$10,000

20X1

$8,000

20X2

40,000

20X2

26,000

20X3

90,000

20X3

105,000

The gross profit rate were 20X1 35%, 20X2 30%, 20X3 40%

1. What adjusting entries are required on December 31, 20X3?

2. How much was collected in 20X3 on accounts receivable each year?

Problem 2: The Warren Furniture Company reports income on the installment basis and uses perpetual inventory accounts. The following data are available:

Sales Year

% gross profit

Installment Rec. Jan 1, 20X7

Collected During 20X7

Installment Rec. On dec 31, 20X7

20X5

46%

$30,000

$30,000

-

20X6

42%

50,000

34,000

$160,000

20X7

40%

-

60,000

140,000

 To this data, prepare an 20X7 journal entries, including those required for the recognition of gross profit at the end of the year.

Reference no: EM13841216

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