D is corrent. The installment method recognizes revenue as cash is collected. In year 2, accrual basis sales were $1,500,000. The balance in accounts receivable attributable to the year 2 sales was $900,000, which indicates that revenue recognized under the installment method would be $600,000 ($1,500,000 – $900,000). The gross profit percentage can be calculated by examining the relationship between the deferred gross profit of $252,000 for the year 2 sales, and the year 2 sales, which have not yet been collected. Therefore, this answer is correct because the gross profit percentage for year 2 sales is calculated as $252,000/$900,000 = 28%.
A is incorrect. The installment method recognizes revenue as cash is collected. In year 2, accrual basis sales were $1,500,000. The balance in accounts receivable attributable to the year 2 sales was $900,000, which indicates that revenue recognized under the installment method would be $600,000 ($1,500,000 – $900,000). The gross profit percentage can be calculated by examining the relationship between the deferred gross profit of $252,000 for the year 2 sales, and the year 2 sales, which have not yet been collected. Therefore, this answer is correct because the gross profit percentage for year 2 sales is calculated as $252,000/$900,000 = 28%.
A is incorrect. The installment method recognizes revenue as cash is collected. In year 2, accrual basis sales were $1,500,000. The balance in accounts receivable attributable to the year 2 sales was $900,000, which indicates that revenue recognized under the installment method would be $600,000 ($1,500,000 – $900,000). The gross profit percentage can be calculated by examining the relationship between the deferred gross profit of $252,000 for the year 2 sales, and the year 2 sales, which have not yet been collected. Therefore, this answer is correct because the gross profit percentage for year 2 sales is calculated as $252,000/$900,000 = 28%.
C is incorrect. The installment method recognizes revenue as cash is collected. In year 2, accrual basis sales were $1,500,000. The balance in accounts receivable attributable to the year 2 sales was $900,000, which indicates that revenue recognized under the installment method would be $600,000 ($1,500,000 – $900,000). The gross profit percentage can be calculated by examining the relationship between the deferred gross profit of $252,000 for the year 2 sales, and the year 2 sales, which have not yet been collected. Therefore, this answer is correct because the gross profit percentage for year 2 sales is calculated as $252,000/$900,000 = 28%.
