Question

On January 2, 20X1, Blake Co. sold a used machine to Cooper, Inc., for $900,000, resulting in a gain of $270,000. On that date, Cooper paid $150,000 cash and signed a $750,000 note bearing interest at 10%. The note was payable in three annual installments of $250,000 beginning January 2, 20X2. Blake appropriately accounted for the sale under the installment method. Cooper made a timely payment of the first installment on January 2, 20X2, of $325,000 which included accrued interest of $75,000. What amount of deferred gross profit should Blake report on December 31, 20X2?A. $150,000B. $172,500C. $180,000D. $225,000

Answer 1

A. 150.000

Step-by-step explanation:

profit percentage= 270.000/900.000 = 0.3 * 100 = 30%

Deferred gross profit in 20x1

= 270000 -(150.000*30%) where 150000 is the paid in cash.

= 225000

Deferred gross profit in 20x2

= 225000 - (250.000*30%) = 150.000 and this is the answer.

Because the profits will be distributed in three years proportionally to the payments received.

interest is not part of deferred gross profit.