P 5-2 Installment sales and cost recovery methods
Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2011 and 2012 is as follows:
2011 2012 Sales $300,000 $400,000 Cost of sales 180,000 280,000 Customer collections on: 2011 sales 120,000 100,000 2012 sales – 150,000
Required:
1. Calculate the amount of gross profit that would be recognized each year from installment sales.
2. Prepare all necessary journal entries for each year
3. Repeat requirements 1 and 2 assuming that Ajax uses the cost recovery method to account for its installment sales.
