Use the following information for questions 96-98.
During 2014, Vaughn Corporation sold merchandise costing $2,250,000 on an installment basis for $3,000,000. The cash receipts related to these sales were collected as follows: 2014, $1,200,000; 2015, $1,050,000; 2016, $750,000.
-If expenses, other than the cost of the merchandise sold, related to the 2014 installment sales amounted to $135,000, by what amount would Vaughn's net income for 2014 increase as a result of installment sales?
A) $ 165,000
B) $ 266,250
C) $ 300,000
D) $1,065,000

Question

Quizplus · Accepted Answer

The gross profit on installment sales is $750,000 ($3,000,000 - $2,250,000). The gross profit rate is 25% ($750,000 / $3,000,000). For 2014, the recognized gross profit is $300,000 ($1,200,000 x 25%). After deducting expenses of $135,000, the net income increase is $165,000 ($300,000 - $135,000).

Use the Following Information for Questions 96-98