Partial Balance Sheet Essay

1388 Words Aug 28th, 2010 6 Pages
exercises

Exercise 5-1
Installment sales; alternative recognition methods

( LO1 LO2 On June 1, 2006, the Luttman and Dowd Company sold inventory to the Ushman Corporation for $400,000. Terms of the sale called for a down payment of $100,000 and four annual installments of $75,000 due on each June 1, beginning June 1, 2007. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $150,000. The company uses the perpetual inventory system.

Required:
1. Compute the amount of gross profit to be recognized from the installment sale in 2006, 2007, 2008, 2009, and 2010 using point of delivery revenue recognition. Ignore interest charges.
2. Repeat
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Determine the following ratios for 2006: a. profit margin on sales b. return on assets c. return on shareholders’ equity
2. Determine the amount of dividends paid to shareholders during 2006.

PROBLEMS

Problem 5-1
Installment sales; alternative recognition methods

( LO1 LO2 On October 31, 2006, the Dionne Company sold merchandise to the Parker Corporation for $800,000. Terms of the sale called for a down payment of $200,000 and three annual installments of $200,000 due on each October 31, beginning October 31, 2007. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The book value of the merchandise on Dionne’s books on the date of sale was $400,000. The perpetual inventory system is used. The company’s fiscal year end is December 31.

Required:
1. Prepare a table showing the amount of gross profit to be recognized in each of the four years of the installment sale

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