EXERCISE 18-13 (15-20 minutes)

Gross Profit Ratio—2004: ($750,000 – $525,000) ÷ $750,000 = 30%

Gross Profit Ratio—2005: ($840,000 – $604,800) ÷ $840,000 = 28%

(a)   Balance, December 31, 2004:

        Deferred Gross Profit Account—2004 Installment Sales

        Gross profit on installment sales—2004                                     $225,000

            ($750,000 – $525,000)

        Less:  Gross profit realized in 2004 ($310,000 X 30%)                (93,000)

                Balance at 12/31/04                                                                 $132,000

        Balance, December 31, 2005:

        Deferred Gross Profit Account—2004 Installment Sales

        Balance at 12/31/04                                                                         $132,000

        Less:  Gross profit realized in 2005 on 2004 sales

            ($300,000 X 30%)                                                                             (90,000)

                Balance at 12/31/05                                                                 $  42,000

        Deferred Gross Profit Account—2005 Installment Sales

        Gross profit on installment sales—2005                                     $235,200

            ($840,000 – $604,800)

        Less:  Gross profit realized in 2005 on 2005 sales

            ($400,000 X 28%)                                                                          (112,000)

                Balance at 12/31/05                                                                 $123,200

 (b)  Repossessed Merchandise......................................         8,000

        Deferred Gross Profit ($12,000 X 30%)....................         3,600

        Loss on Repossession..............................................            400

                Installment Accounts Receivable....................                          12,000

                    (To record the default and the

                     repossession of the merchandise)