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16 April, 09:26

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

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  1. 16 April, 09:48
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    A. 150.000

    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.
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