EXERCISE 18-5 (10-15 minutes)

(a)   Contract billings to date                                                                   $61,500         Less accounts receivable 12/31/04                                                  21,500         Portion of contract billings collected                                             $40,000
(b) $18,200 = 28% $65,000
        (The ratio of gross profit to revenue recognized in 2004.)
        $1,000,000 X .28 = $280,000
(The initial estimated total gross profit before tax on the contract.) le='tab-stops:30.0pt 60.0pt right dotted 318.0pt blank 405.0pt 504.0pt'>        Sales Revenue—Texts*.................................            80,000

        Allowance for Returns...................................       1,920,000         Accounts Receivable.....................................                               16,000,000
        *A debit to either Sales Revenue—Texts or Sales Returns could be made here.