Ford Appliance Center Records Revenue on the Installment Sales Method

Multiple Choice

Ford Appliance Center records revenue on the installment sales method. The following information is available for the first two years of business.
$\begin{array}{lrr}&\text { Year } 1&\text { Year } 2\\\text { Sales } & \$ \overline{200,000} & \$ 2 \overline{50,000} \\\text { Cost of goods sold } & 140,000 & 162,500 \\\text { Cash collections: } & & \\\quad \text { Year 1 sales } & 100,000 & 80,000 \\\quad \text { Year 2 sales } & & 130,000\end{array}$
-Which one of the following entries properly records the deferral of gross profit on Year 2 installment sales not yet collected?

A) DR Cost of installment goods sold $\quad 62,500$
DR Deferred gross profit-Year $2 \quad 87,500$
CR Installment sales revenue $\quad 150,000$
B) $\begin{array}{lr}\text { DR Cost of installment goods sold } & 302,500 \\\text { DR Deferred gross profit-Year 1 } & 60,000 \\\text { DR Deferred gross profit-Year 2 } & 87,500\\\text { CR Installment sales revenue }&450,000\end{array}$
C) DR Deferred gross profit-Year 2 $\quad$$\quad$ 42,000
CR Deferred gross profit-Adjustment to
accounts receivable-Year 2 $\quad$$\quad$$\quad$$\quad$ 42,000
D) DR Deferred gross profit_-Adjustment to accounts
Receivable-Year 2 $\quad$$\quad$ 42,000
CR Deferred gross profit-Year 2 $\quad$$\quad$ 42,000