On January 1, 2014, Orton Co. sold a used machine to King, Inc. for $1,050,000.

Question

On January 1, 2014, Orton Co. sold a used machine to King, Inc. for $1,050,000. On this date, the machine had a depreciated cost of $735,000. King paid $150,000 cash on January 1, 2014 and signed a $900,000 note bearing interest at 10%. The note was payable in three annual installments of $300,000 plus interest beginning January 1, 2015. Orton appropriately accounted for the sale under the installment-sales method. King made a timely payment of the first installment on January 1, 2015 of $390,000, which included interest of $90,000 to date of payment. At December 31, 2015, Orton has deferred gross profit of a. $210,000. b. $198,000. c. $180,000. d. $153,000.

Explanation / Answer

Answer is C 180000

Sale Value 150000+900000 1050000 Less Book value of asset 735000 Gross profit 315000 gross profit Ratio 30.00% First Principal payment And Down payment 450000 Current year gross profit 30% of Above 135000 Deffered (315000-900000) 180000

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