Cost Recovery Method
Bailey Bats Inc. had the following sales and gross profit percentages for the years 2007–2010.
|
|
Sales |
Gross Profit Percentage |
|
2007 |
$47,000 |
45% |
|
2008 |
45,000 |
42 |
|
2009 |
58,000 |
47 |
|
2010 |
61,000 |
49 |
Historically, 55% of sales are collected in the year of the sale, 30% in the following year, and 10% in the third year. Assuming collections are as projected, give the journal entries for the years 2007–2010, assuming the cost recovery method. (Ignore provision for bad debts.) Prepare a table comparing the gross profit recognized for 2007–2010 using the full accrual method and the cost recovery method.