ex102)Coaster manufactures and sells logging equipment. Due to the nature of its

Question

ex102)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 installment-sales 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, 2014?

Explanation / Answer

Answer is 1120000

Sales price 7200000 Cost of goods sold 4800000 Gross Profit 2400000 Gross profit % 33.33% Collections Down payment 7200000*.20 1440000 installment received (7200000*.80*4 quarter/(3 years* 4 Quarter) =72000000*.80*4/12 1920000 Amount Collected 3360000 Revenue recognized 3360000*33.33% 1120000

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