Wilson Hardware Sells on the Instalment Plan

question 35

Multiple Choice

Wilson Hardware sells on the instalment plan. Sales- related figures for Saunders Hardware for 2013 were as follows: Sales, $600 000; down payments on the sales, $60 000; collections on instalments, $250 000; beginning inventory, $90 000; ending inventory $60 000; and purchases, $400 000. What is Saunders Hardware's gross profit using the sales method of income recognition?

• A)$260 000
• B)$200 000
• C)$190 000
• D)$170 000

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Definitions:

Gross Cost

The total cost of a product or service before any deductions, discounts, or allowances are applied; the raw cost of an item.

Commission

A fee paid to an agent or employee for transacting a piece of business or performing a service, especially a percentage of the money received from a total paid to the agent responsible for the business.

Principals

The original amount of money invested or loaned, on which basis interest and returns are calculated.

Total Commission

The entire amount of money earned by an individual or a company as a result of successfully completing a sale or series of sales.