. Lake Power Sports sells jet skis and other powered recreational equipment. Cus

Question

. Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay 1/3 of the sales price of a jet ski when they initially purchase the ski, and then pay another 1/3 each year for the next two years. Because Lake has little information about collectibility of these receivables, they use the installment method for revenue recognition. In 2012 Lake began operations and sold jet skis with a total price of $870,000 that cost Lake $435,000. Lake collected $290,000 in 2012, $290,000 in 2013, and $290,000 in 2014 associated with those sales. In 2013 Lake sold jet skis with a total price of $1,590,000 that cost Lake $954,000. Lake collected $530,000 in 2013, $450,000 in 2014, and $450,000 in 2015 associated with those sales. In 2015 Lake also repossessed $160,000 of jet skis that were sold in 2013. Those jet skis had a fair value of $60,000 at the time they were repossessed.
In 2102, Lake would recognize realized gross profit of:

a. $0

b. $435,000

c. $290,000

d. $145,000

Explanation / Answer

Gross profit realised in 2012=145000

Working:

jet skis sold at 870000

Cost to lake=435000

profit=870000-435000=435000

Profit in 2012=435000/3=145000

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