B is corrent. The total gross profit (GP) on the sale is $315,000 (selling price of $1,050,000 less depreciated cost of $735,000), and the GP rate is 30% ($315,000/$1,050,000). GP recognized in year 2 is $45,000 (30% x $150,000 down payment), and GP recognized in year 3 is $90,000 [30% x ($390,000 - $90,000)]. This leaves a balance of $180,000 in deferred GP.
A is incorrect. The total gross profit (GP) on the sale is $315,000 (selling price of $1,050,000 less depreciated cost of $735,000), and the GP rate is 30% ($315,000/$1,050,000). GP recognized in year 2 is $45,000 (30% x $150,000 down payment), and GP recognized in year 3 is $90,000 [30% x ($390,000 - $90,000)]. This leaves a balance of $180,000 in deferred GP.
A is incorrect. The total gross profit (GP) on the sale is $315,000 (selling price of $1,050,000 less depreciated cost of $735,000), and the GP rate is 30% ($315,000/$1,050,000). GP recognized in year 2 is $45,000 (30% x $150,000 down payment), and GP recognized in year 3 is $90,000 [30% x ($390,000 - $90,000)]. This leaves a balance of $180,000 in deferred GP.
A is incorrect. The total gross profit (GP) on the sale is $315,000 (selling price of $1,050,000 less depreciated cost of $735,000), and the GP rate is 30% ($315,000/$1,050,000). GP recognized in year 2 is $45,000 (30% x $150,000 down payment), and GP recognized in year 3 is $90,000 [30% x ($390,000 - $90,000)]. This leaves a balance of $180,000 in deferred GP.
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