EXERCISE 18-17 (15-20 minutes)

Year	Cash (Dr.)	Deferred       Interest Revenue (Cr.)	Installment Accounts Receivable (Cr.)	Installment Unpaid Balance	Uncovered Cost	Realized Gross Profit	Realized Interest Revenue
1/1/05	—	—	—	$120,000	$110,000	—	—
2005	$  52,557	$18,000a	$34,557 b	85,443 c	57,443 d	—	—
2006	52,557	12,816	39,741	45,702	4,886	—	—
2007	52,557	(30,816)*	45,702	—	—	$10,000	$37,671 e
	$157,671					$10,000	$37,671

^a$120,000 X 15% = $18,000.

^b$52,557 – $18,000 = $34,557.

^c$120,000 – $34,557 = $85,443.

^d$110,000 – $52,557 = $57,443.

*This amount is used to transfer the Deferred Interest Revenue from 2005 ($18,000) and 2006 ($12,816) to Realized Interest Revenue in 2007.

^e2007 interest revenue ($45,702 X 15%)                                                                                        $  6,855

2005 and 2006 interest revenue to be recognized ($18,000 + $12,816)                                      30,816

Realized interest revenue in 2007                                                                                                 $37,671