ex.103)Coaster manufactures and sells logging equipment. Due to the nature of it
ID: 2480278 • Letter: E
Question
ex.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 cost-recovery 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, 2015?
Explanation / Answer
Answer: The realized gross profit will Coaster report in its income statement for the year ended December 31, 2015:
[($7,200,000 × .20) + ($7,200,000 × .80 × 8/12] – $4,800,000 = $480,000.
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