# Question & Answer: I know that the answer is 310k …. I'm not sure why that is the answer……

I know that the answer is 310k …. I’m not sure why that is the answer.

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Please explain how that is the answer and show the work required to get to that answer.

Thank you kindly.

MC Qu. 219 Lake Power Sports sells jet skis and other p… Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the installment sales method for revenue recognition. In 2015, Lake began operations and sold jet skis with a total price of \$900,000 that cost Lake \$450,000. Lake collected \$300,000 in 2015, \$300,000 in 2016, and \$300,000 in 2017 associated with those sales. In 2016, Lake sold jet skis with a total price of \$1,500,000 that cost Lake \$900,000, Lake collected \$500,000 in 2016, \$400,000 in 2017, and \$400,000 In 2018 assoclated wlth those sales. In 2018, Lake also repossessed \$200,000 of Jet skis that were sold In 2016. Those Jet skls had a falr value of \$75,000 at the tlme they were repossessed. In 2017, Lake would recognize realized gross profit of O so \$%0. \$450.000. \$310.000 O\$700,000

Solution

 Total sales installment received in 2015 installment received in 2016 installment received in 2017 installment received in 2018 2015 \$900,000 \$300,000 \$300,000 \$300,000 2016 \$1,500,000 \$500,000 \$400,000 \$400,000

Gross profit % for :

=(Sales-cost)/sales

2015=(900,000-450,000)/900,000=50%

2016=(1,500,000-900,000)/1,500,000=40%

Installment of 2015 sales=\$300,000, on which gross profit %=50%, so recognized profit on 2015 sales:

=\$300,000×50%

=\$150,000

Also he received \$400,000 from 2016 sales, recognized profit on this sale:

=\$400,000×40%

=\$160,000

So total recognized profit=\$150,000+\$160,000

=\$310,000