[omalloy]

In the explanation bellow, I do not understand how 144 amount for interest collected is calculated. What am I missing?

On January 2, 20X1, Yardley Co. sold a plant to Ivory, Inc., for $1,500,000. On that date, the plant’s carrying cost was $1,000,000. Ivory gave Yardley $300,000 cash and a $1,200,000 note, payable in four annual installments of $300,000 plus 12% interest. Ivory made the first principal and interest payment of $444,000 on December 31, 20X1. Yardley uses the installment method of revenue recognition. In its 20X1 income statement, what amount of realized gross profit should Yardley report:

Gross profit on sale = $1,500,000 – $1,000,000 = $500,000

Gross profit rate = $500,000 / $1,500,000 = 1/3%

Cash collected in 20X1 ($300,000 + $444,000) $744,000

*****Less interest collected ($444,000 – $300,000) 144,000***********

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Cash collected from sales 600,000

Times gross profit rate x 1/3

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Gross profit reported in 20X1 $200,000

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FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

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[Pinback14]

1,200,000 x 12% = 144,000 interest

Yardley received $744,000 cash during the year, of which $600,000 was principal and $144,000 was interest (calculated above).

F - 96
A - 99
R - 95
B - 95

[omalloy]

Thank you! Things looks so much more clear in the morning.

FAR 65, 70, 78
REG 64, 76
BEC 70, 80
AUD 81

Ethics 96

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[Author]

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