Ramirez Video, Inc., sells video recorders under terms calling for a small down payment and monthly payments spread over three years. Following are data for the first three years of the company”s operations:
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2008 |
2009 |
2010 |
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Gross margin rate 30% |
40% |
50% |
|
Cash collected in 2010: |
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|
From sales in…………$216,000 |
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|
From sales in |
$288,000 |
|
|
From sales in |
$480,000 |
Total sales for 2010 were USD 1,600,000, while general and selling expenses amounted to USD 400,000.
a. Compute net income for 2010, assuming revenues are recognized at the time of sale.
b. Compute net income for 2010, using the installment method of accounting for sales and gross margin.