Question

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 2017, Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2017, $300,000 in 2018, and $300,000 in 2019 associated with those sales. In 2018, Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2018, $400,000 in 2019, and $400,000 in 2020 associated with those sales. In 2020, Lake also repossessed $200,000 of jet skis that were sold in 2018. Those jet skis had a fair value of $75,000 at the time they were repossessed. In its December 31, 2018, balance sheet, Lake would report: Multiple Choice Deferred gross profit of $700,000. Deferred gross profit of $1,050,000. Installment receivables (net) of $750,000. Installment receivables (net) of $900,000.

Answer 1

Lake Power Sports As of 12/31/2018, the installment receivable would be as follows: 2017 Sales: Installment receivables = $900,000 - $300,000 (2015 collections) - $300,000 (2018 collections) = Deferred gross profit = $450,000 - $150,000 (2017 collections) - $150,000 (2018 collections) = Net installment receivable for 2017 sales = 300000 150000 150000 2018 Sales: Installment receivables = $1,500,000 - $500,000 (2018 collections) = Deferred gross profit = $600,000 - $200,000 (2018 collections) = Net installment receivable for 2018 = Total 1000000 400000 600000 750000 Answer:Installment receivables (net) of $750,000