Entro Co. sold equipment to Pan Co. for $80,000. The equipment had a net book am

Question

Entro Co. sold equipment to Pan Co. for $80,000. The equipment had a net book amount of $50,000. The collections were $30,000 in the first year, $32,000 in the next year, and $18,000 in the last year. What is the amount of gross profit for the third year if Entro used the installment-sales accounting method for the transaction? A. $11,250 B. $6,750 C. $12,000 D. $30,000 During Year 1, Fan Co.'s trademark was licensed to Ham Corp. for royalties of 15% of net sales of the trademarked items. Returns were estimated to be 2% of gross sales. On signing the licensing agreement, Ham paid Fan $ 90,000 as an advance against future royalty earnings. Gross sales of the trademarked items during the year were $750,000. What amount should Fan report as royalty income for Year 1? A. $110,250 B. $112,500 C. $111,375 D. $73,500 Entro Co. sold equipment to Pan Co. for $80,000. The equipment had a net book amount of $50,000. The collections were $30,000 in the first year, $32,000 in the next year, and $18,000 in the last year. What is the amount of gross profit for the third year if Entro used the installment-sales accounting method for the transaction? A. $11,250 B. $6,750 C. $12,000 D. $30,000 During Year 1, Fan Co.'s trademark was licensed to Ham Corp. for royalties of 15% of net sales of the trademarked items. Returns were estimated to be 2% of gross sales. On signing the licensing agreement, Ham paid Fan $ 90,000 as an advance against future royalty earnings. Gross sales of the trademarked items during the year were $750,000. What amount should Fan report as royalty income for Year 1? A. $110,250 B. $112,500 C. $111,375 D. $73,500

Explanation / Answer

Question - 1 .............. Select Option - B ...... 6750

Explanation

(1) Calculate the profit % ................ = 30,000 / 80000 = 3/8

Here profit of 30000 = sale of 80000 - Book value of 50000 = profit of 30000

(2) Profit recognized from 3rd Installment collection = 18000 * 3/8 = 6750

Question - 2 ........... Select - Option - A ............ 110,250

Sales 750000 (-) Returns 15000 Net sales 735000 Royality Income 110,250

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