(a) Deferred Gross Profit—2004............................ 3,150*
Deferred Gross Profit—2005............................ 12,400**
Deferred Gross Profit—2006............................ 69,400***
Realized Gross Profit................................ 84,950
(To recognize gross profit on installment
sales)
*Adjustment for deferred gross
profit—2004:
Balance in deferred gross profit account
prior to adjustment $7,000
Balance after adjustment ($11,000 X 35%) 3,850
Adjustment $3,150
**Adjustment for deferred gross
profit—2005:
Balance in deferred gross profit account
prior to adjustment $26,000
Balance after adjustment ($40,000 X 34%) 13,600
Adjustment $12,400
***Adjustment for deferred gross
profit—2006:
Balance in deferred gross profit account
prior to adjustment $95,000
Balance after adjustment ($80,000 X 32%) 25,600
Adjustment $69,400
(b) Cash collected in 2003 on accounts receivable
of 2004:
$3,150/35% = $9,000.
Cash collected in 2003 on accounts
receivable of 2005:
$12,400/34% = $36,470.59.
Cash collected in 2003 on accounts
receivable of 2006:
$69,400/32% = $216,875.
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