Use the following information for questions 102 and 103.
Coaster manufactures and sells logging equipment. Due to the nature of its business, Coaster is unable to reliably predict bad debts. During 2014, Coaster sold equipment costing $4,800,000 for $7,200,000. The terms of the sale were 20% down, with equal payments due quarterly over the next 3 years. All payments for 2014 were made on schedule. Round answers to two places.
-Assuming that Coaster uses the installment-sales method of accounting for its installment sales, what amount of realized gross profit will Coaster report in its income statement for the year ended December 31, 2014?
A) $3,360,000
B) $2,240,000
C) $1,120,000
D) $ 739,200

Question

Quizplus · Accepted Answer

Under the installment-sales method, gross profit is recognized as cash is collected. In 2014, Coaster collected 20% of the sales price as a down payment. The gross profit percentage is ($7,200,000 - $4,800,000) / $7,200,000 = 33.33%. The cash collected in 2014 is 20% of $7,200,000, which is $1,440,000. Therefore, the realized gross profit is 33.33% of $1,440,000, which equals $480,000.

Use the Following Information for Questions 102 and 103