EXERCISE 18-16 (15-20 minutes)

(a)   Computation of gross profit realized—cost recovery method:

Year	Cash       Received	Original Cost           Recovered	Balance of Unrecovered Cost	Gross Profit Realized
Beginning balance	—	—	$150,000	—
2004	$100,000	$100,000	50,000	$0
2005	60,000	50,000	0	10,000
2006	40,000	0	0	40,000

(b)   Computation of gross profit realized—installment method:

        Gross profit rate: ($200,000 – $150,000) ÷ $200,000 = 25%

        2004 Gross profit realized:       $100,000 X 25% = $25,000

        2005 Gross profit realized:       $60,000 X 25% = $15,000

        2006 Gross profit realized:       $40,000 X 25% = $10,000