• Creator
    Topic
  • #94912
    Hatsumi
    Participant

    The explanation for the right answer is not clear for me, can you please advise me how much profit the company earned at the 1st year also ? with which I believe I could understand the question more clearly, thank you.

    • This topic was modified 4 years, 1 month ago by HOCK international.
    • This topic was modified 4 years, 1 month ago by HOCK international.
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  • #94913
    Lynn Roden
    HOCK international

    Hi Hatsumi,

    The question asks for the rate of gross profit on Year 2 sales. The gross profit rate is used to determine how much gross profit should be recognized when cash collections are received on those sales.

    Since the question asks only for the rate of gross profit on Year 2 sales, it is not asking for the amount of gross profit recognized on Year 2 sales. It is only asking for the rate that should be used to determine how much gross profit should be recognized when the cash collections on those sales are received. That rate is the selling price minus the cost, which is the sales revenue of $5,000 minus the cost of $4,000, divided by the sales revenue of $5,000, or 20%.

    The amount of gross profit recognized in either Year 1 or Year 2 is not relevant to answering this question, since that is not what the question asks for.

    Lynn

    #94914
    Hatsumi
    Participant

    Thank you very much of your kind and exact explanation by return, yes, it is very clear now, Arigato (thank you in Japanese).

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