In 2014, Lake would recognize realized gross profit of:

Question

Quizplus · Accepted Answer

Based on the cost recovery method, realized gross profit is recognized only after the total cost of the goods sold has been recovered. Since the total cost of goods sold by Lake in 2014 was $1,000,000 ($700,000 beginning inventory + $300,000 purchases), Lake would only recognize realized gross profit when the sales revenue exceeds $1,000,000. Since the sales revenue recognized in 2014 was $1,310,000, and the total cost of goods sold was $1,000,000, the realized gross profit would be $310,000 [(($1,310,000 - $1,000,000) / $1,310,000) x $1,310,000]. Therefore, the correct answer is C.

In 2014, Lake Would Recognize Realized Gross Profit Of