EXERCISE 18-14 (10-15 minutes)

GAIL DEVERS CORPORATION

Income before Income Taxes on Installment Sale Contract

For the Year Ended December 31, 2004

                                                                                                                                        

Sales                                                                                                            $676,000

Cost of sales                                                                                                500,000

Gross profit                                                                                                  176,000

Interest revenue (Schedule 1)                                                                     28,800

Income before income taxes                                                                  $204,800

Schedule 1

Computation of Interest Revenue on Installment Sale Contract

Cash selling price                                                                                     $676,000

Deduct payment made July 1, 2004                                                        100,000

                                                                                                                        576,000

Interest rate                                                                                               X       10%

Annual interest                                                                                          $  57,600

Interest July 1, 2004 to December 31, 2004 ($57,600 X 1/2)              $  28,800