Octagon Co

question 36

Essay

Octagon Co. appropriately uses the installment sales method of accounting for its installment sales. During 2013, Octagon made installment sales of $400,000 and received payments of $250,000 on those sales. Octagon's gross profit margin is 40%.
Required: Prepare journal entries to record the sale, collection, and recognition of gross profit.

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Definitions:

Simple Interest

Interest calculated only on the principal amount, or the initial sum of money invested or loaned.

Market Rate

The prevailing interest rate available in the marketplace for investments, loans, and deposits.

Simple Interest

Interest calculated only on the principal amount, or the original sum of money lent or invested, without compounding.

Savings Account

A deposit account held at a bank or other financial institution that provides modest interest income.