How much is the gross profit rate based on total sales

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Reference no: EM132652829

Question - Songing co. Sells household furniture both on cash and installment basis. For each installment sale, a contract is entered into whereby the following terms are stated:

A down payment of 25% of the installment selling price is required and the balance is payable in 15 equal monthly installments.

Interest of 1%per month is charged on the unpaid cash sales price equivalent at each installment.

The price on installment sale is equal to 110% of the cash sale price.

For accounting purposes, installment sales are recorded at contract price. Any unpaid balances on defaulted contract are charged on uncollectible accounts expense. Sales of defaulted merchandise are credited to uncollectible accounts expense. Interest are recorded in the period earned for its first year of the operation ending December 31,20x1, the books of the company showed the following:

Cash sales 378,000

Installment Sales 748,970

Merchandise inventor, January 1 174,750

Cash collections on installment contracts:

Down payment, including defaulted contracts 198,750

Installment payments, including interest of 27,758.52 (average of six monthly installments on all contracts, except on defaulted contracts) 238,000

A contract amounting to 3,300 was defaulted after the payment of 3 installment.

1. How much is the gross profit rate based on total sales at cash sales price equivalent?

A. 33.75%

B. 36.34%

C. 37%

D. 40.88%

2. How much is the total interest earned for the first four months on the defaulted contract?

A.60.94

B.69.30

C.72.07

80.85

3. What is the realized gross profit for the year 20x1?

A. 151,335.35

B.161,789.16

C. 249,674.52

D. 291,355.96

Reference no: EM132652829

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