Question

Newport Sales Company started operations in Year 1. It sells merchandise on the installment plan and on regular 30-day open accounts. Activities for Year 1 are summarized below:

Regular sales                                                                                                                          $ 360,000

Installment sales, including $90,000 deferred interest and carrying charges                    $ 690,000

Cost of regular sales                                                                                                               $ 203,000

Cost of installment                                                                                                                $ 360,000

Operating expenses                                                                                                                $ 177,000

Collection on regular sales                                                                                                    $ 310,000

Collection on installment sales, including $ 30,000 interest and carrying

         charges, all of which were earned in Year 1                                                               $ 255,000

Newport Sales uses the perpetual inventory system and does not include interest and carrying charges in the computation of gross profit on installment sales.

Instructions :

Prepare journal entries to record all transactions for Year 1, including the establishment of deferred gross profit at adjusting entries, using only the information given in the problem. Assume that the installment method of accounting is used. Closing entries are not required.

Answer 1

Journal entries

Sl No	Particulars	Debit ($)	Credit ($)
1.	Accounts receivable    Dr.	360000
	To Sales(Regular)		360000
2.	Account receivable    Dr	600000
	Interest Receivable Dr	90000
	To sales(Installment)		600000
	To interest Income		90000
3.	Cost Of Goods sold    Dr	203000
	To merchandise		203000
4.	Cost of Goods Sold Dr	360000
	To Merchandise		360000
5.	Operating Expenses    Dr	177000
	To cash		177000
6.	Cash Dr	310000
	To Account Receivable		310000
7.	Cash    Dr	255000
	To Interest Receivable		30000
	To Accounts Receivable		225000