Mantle Inc. sells merchandise for cash and also on the installment plan. Entries to record cost of goods sold are made at the end of each year.

Repossessions of merchandise (sold in 2014) were made in 2015 and were recorded correctly as follows.

Deferred Gross Profit, 2014	7,200
Repossessed Merchandise	8,000
Loss on Repossession	2,800
Installment Accounts Receivable, 2014		18,000

Part of this repossessed merchandise was sold for cash during 2015, and the sale was recorded by a debit to Cash and a credit to Sales Revenue.

The inventory of repossessed merchandise on hand December 31, 2015, is $4,000; of new merchandise, $127,400. There was no repossessed merchandise on hand January 1, 2015.

Collections on accounts receivable during 2015 were:

Installment Accounts Receivable, 2014	$80,000
Installment Accounts Receivable, 2015	50,000

The cost of the merchandise sold under the installment plan during 2015 was $111,600. The rate of gross profit on 2014 and on 2015 installment sales can be computed from the information given.

MANTLE INC. Trial Balance December 31, 2015
	Dr.	Cr.
Cash	$118,400
Installment Accounts Receivable, 2014	80,000
Installment Accounts Receivable, 2015	130,000
Inventory, Jan. 1, 2015	120,000
Repossessed Merchandise	8,000
Accounts Payable		$ 47,200
Deferred Gross Profit, 2014		64,000
Common Stock		200,000
Retained Earnings		40,000
Sales Revenue		400,000
Installment Sales		180,000
Purchases	360,000
Loss on Repossession	2,800
Operating Expenses	112,000
	$931,200	$931,200

Instructions

(a)	From the trial balance and other information given above, prepare adjusting and closing entries as of December 31, 2015.

(b)	Prepare an income statement for the year ended December 31, 2015. Include only the realized gross profit in the income statement.

Answer rating: 100% (QA)

a The rate of gross profit for 2014 is calculated ... View the full answer