installment sales computation and entries periodic inventory 264130

Installment Sales Computation and Entries—Periodic Inventory Mantle Inc. sells merchandise for cash and also on the installment plan. Entries to record cost of goods sold are made at the end of each year. Repossessions of merchandise (sold in 2010) were made in 2011 and were recorded correctly as follows.

Deferred Gross Profit, 2010 7,200

Repossessed Merchandise 8,000

Loss on Repossession 2,800

Installment Accounts Receivable, 2010 18,000

Part of this repossessed merchandise was sold for cash during 2011, and the sale was recorded by a debit to Cash and a credit to Sales. The inventory of repossessed merchandise on hand December 31, 2011, is $4,000; of new merchandise, $127,400. There was no repossessed merchandise on hand January 1, 2011. Collections on accounts receivable during 2011 were:

Installment Accounts Receivable, 2010 $80,000

Installment Accounts Receivable, 2011 50,000

The cost of the merchandise sold under the installment plan during 2011 was $111,600. The rate of gross profit on 2010 and on 2011 installment sales can be computed from the information given.

Instructions

(a) From the trial balance and other information given above, prepare adjusting and closing entries as of December 31, 2011.

(b) Prepare an income statement for the year ended December 31, 2011. Include only the realized gross profit in the incomestatement.