Rosson Corporation, which began business on January 1, 2008, appropriately uses the installment sales method of accounting for income tax reporting purposes. The following data are available for 2008:
Installment accounts receivable, 12/31/2008 $200,000
Installment sales for 2008 350,000
Gross profit on sales 40%
Under the installment sales method, what would be Rosson’s deferred gross profit at December 31, 2008?
a. $120,000
b. $90,000
c. $80,000
d. $60,000
C. $80,000
Wolf Computer Company began operation in 2013. The company allows customers to pay in installments for many of its products. Installment sales for 2013 were $1, 000,000. If revenue is recognized at the point of delivery, $600,000 in gross profit would be recognized in 201sss3. If the company instead uses the profit deferral method, $100,000 in gross profit would be recognized in 2013.
Required:
1. What was the amount of each collected on installment sales in 2013?
2. What amount of gross profit would be recognized if the company if the company uses the installment sales method?
To calculate Rosson Corporation's deferred gross profit at December 31, 2008, we need to use the installment sales method formula, which is:
Deferred Gross Profit = Installment Accounts Receivable x Gross Profit Percentage
Given:
Installment Accounts Receivable, 12/31/2008 = $200,000
Gross Profit on Sales = 40%
Using the formula, we can calculate the deferred gross profit:
Deferred Gross Profit = $200,000 x 40%
Deferred Gross Profit = $80,000
Therefore, Rosson Corporation's deferred gross profit at December 31, 2008, would be $80,000 (option c).