EXERCISE 6–1 7. R. Lott Corporation, which began business on January 1, Year 7, uses the installment sales method of accounting.

The following data are available for December 31, Year 7 and Year 8:

Year 7 Year 8 Balance of deferred gross profit on sales account Year 7....................................................................... $300,000 $120,000 Year 8....................................................................... — $440,000 Gross profit on sales..................................................... 30% 40%

The installment accounts receivable balance at December 31, Year 8, is:

a. $1,000,000

c. $1,400,000

b. $1,100,000

d. $1,500,000