Ford Appliance Center Records Revenue on the Installment Sales Method

question 46

Multiple Choice

Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business.
$\begin{array}{lrr}&\text { Year } 1&\text { Year } 2\\\text { Sales } & \$ \overline{200,000} & \$ 2 \overline{50,000} \\\text { Cost of goods sold } & 140,000 & 162,500 \\\text { Cash collections: } & & \\\quad \text { Year 1 sales } & 100,000 & 80,000 \\\quad \text { Year 2 sales } & & 130,000\end{array}$
-Which one of the following entries properly records realized gross profit on installment sales of Year 1 in Year 2?

• A) DR Deferred gross profit-Year 1\(\quad\)\(\quad\)60,000
• DR Deferred gross profit-Year 2\(\quad\)\(\quad\)87,500
• CR Realized gross profit on installment sales\(\quad\)\(\quad\)147,500
• B) DR Deferred gross profit Adjustment to Accounts \(\quad\)\(\quad\)24,000
• Receivable-Year 1
• CR Recognized gross profit on installment
• sales-Year 1 \(\quad\)\(\quad\)24,000
• C) DR Installment sales revenue\(\quad\)\(\quad\)69,500
• CR Realized gross profit on installment sales\(\quad\)\(\quad\)69,500
• D) DR Installment sales revenue\(\quad\)\(\quad\)87,500
• CR Realized gross profit on installment sales\(\quad\)87,500

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