Answer:
$1,120,000
Explanation:
As per the installment-sales method of accounting, we first calculate the gross profit % and then apply this % to the total amount collected in sales by the end of the period. The calculations are as follows.
Sales $7,200,000
Less: Cost of sales ($4,800,000)
Gross profit $2,400,000
Gross profit % ($2,400,000 / $7,200,000) 33.33%
Down payment (20% x $7,200,000) $1,440,000
Installments during 2014 $1,920,000
(80% x $7,200,000 x 4/12)
Total amount collected $3,360,000
Gross profit recognized (33.33% x $3,360,000) $1,120,000
