The Jones Company Makes Sales on an Installment Basis

question 46

Multiple Choice

The Jones Company makes sales on an installment basis. In 2016, it sells items with a cost of $20 million. The total sales price is $25 million. Ignoring interest payments, customers pay in five equal installments, of $5 million each, with one payment in each of 2016, 2017, 2018, 2019, and 2020. If the company uses the installment method of accounting for this sale, the gross profit it will recognize in 2020, the year the last installment payment is received, is

• A) Zero
• B) $1 million
• C) $5 million
• D) $25 million