Question

The Delancey Dept store sells merchandise on the installment basis. The selling price of its merchandise is $500 and its cost is $325. At the end of the fiscal year the accounts were: Sales (installment): $500,000

Installment accounts receiveable: 280,000

Sales comissions: 15,000

Other expenses: 32,000

The net income for the fiscal year before taxes using the installment method is:

The balance in the deferred income account at the end of the fiscal year is:

Answer 1

Selling price = $500
Cost = $325
Gross profit = $500 - $325 = $175
Gross profit % = $175 / $500 = 0.35 or 35%

1). Calculation of Net Income:
Sales (Installment) = $500,000
Less: Account receivables (Installment) = $280,000
Sales collected during fiscal year = $220,000
Gross profit on sales collected = $220,000 * 35% = $77,000
Less: Sales comissions= $15,000
Less: Other expenses = $32,000
Net Income for the fiscal year = $30,000

2). Balance in the deferred income account at the end of the fiscal year is :
= Account receivables at the end * Gross profit ratio
= $280,000 * 35%
= $98,000