Carson Distributing,which began operating on January 1,appropriately uses the installment method of accounting.The following information pertains to Carson's operations for the first year:

The balance in the deferred gross profit account at December 31 should be
A)$400,000.
B)$320,000.
C)$240,000.
D)$200,000.

Question

Carson Distributing,which began operating on January 1,appropriately uses the installment method of accounting.The following information pertains to Carson's operations for the first year:

The balance in the deferred gross profit account at December 31 should be
A)$400,000. 
B)$320,000. 
C)$240,000. 
D)$200,000.

Quizplus · Accepted Answer

Using the installment method, the actual gross profit earned is deferred until cash payments are received from customers. To calculate the deferred gross profit for the year, we subtract the cost of goods sold from the installment sales: 
$2,000,000 - $1,200,000 = $800,000 (deferred gross profit for the year)

To find the balance in the deferred gross profit account at December 31, we need to subtract the gross profit that has been recognized up to that point from the total deferred gross profit: 
$800,000 - ($200,000 + $280,000) = $320,000

Therefore, the balance in the deferred gross profit account at December 31 is $320,000.

Carson Distributing,which Began Operating on January 1,appropriately Uses the Installment