Miller Company appropriately uses the installment method of accounting to recogn

Question

Miller Company appropriately uses the installment method of accounting to recognize income in its financial statements. Pertinent data relating to this method of accounting includes: installment sales totaled $400,000 for 2013 and $500,000 for 2014; cost of sales were $260,000 for 2013 and $300,00 for 2014; in 2013 Miller collected $280,000 from 2013 sales; in 2014 Miller collected $100,000 from 2013 sales and $300,000 from 2014 sales. What amount should Miller report as realized gross profit on the 2014 income statement?

Explanation / Answer

--------------------- 2013------------2014 installment sales $400,000------- $500,000 cost of sales $260,000--------$ 300000 gross profit $140,000-------$200,000 collections during year on 2013 sales $280,000------$100,000 on 2014 sales $300,000 amount should Miller report as realized gross profit is for 2013 ($140,000 ÷ $400,000) × $280,000 = $98,000 for 2014 [($200,000 ÷ $500,000) × $300,000] + $98,000 = $218,000.

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