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14 July, 09:09

Z-Mart appropriately uses the installment sales method of accounting for its installment sales. During 2013, Z-Mart made installments sales of $300,000 and received payments of $135,000 on those sales. Z-Mart's gross profit margin is 30%. Prepare journal entries to record the sale, collection, and recognition of gross profit.

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  1. 14 July, 11:28
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    Dr. Cr.

    Sale

    Account Receivable $300,000

    Inventory $210,000

    Deffered Gross Profit $90,000

    Payment Receipt

    Cash $135,000

    Account Receivable $135,000

    Profit Recognition

    Deffered Gross Profit $40,500

    Relaized Gross Profit $40,500

    Explanation:

    On sale a receivable is recorded and goods has been transferred to customer and its cost is been deducted from inventory. The Gross profit is deferred until the receipt of payment.

    Deferred Profit = $300,000 x 30% = $90,000

    Inventory cost = $300,000 - $90,000 = $210,000

    Cash received from the customer, profit proportionated to the the cash receipt is realized gross profit.

    Realized Profit = $135,000 x 30% = $40,500
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