1. A company sells inventory costing $180,000 to its customers for $300,000 in Year One. In the following year, inventory costing $275,000 is bought and sold for $500,000. The company reports its sales using the installment sales method. In this second year, the company collected $140,000 from its Year One sales and $200,000 from its Year Two sales. What gross profit should the company report for Year Two? 

a. $136,000 

b. $144,500 

c. $146,000 

d. $153,000

2. On January 1, Year One, a company sells inventory costing $36,000 to a customer for $60,000 on credit. Because of flaws in the design of the inventory, there is significant doubt about the ultimate collectability of this balance. Thus, the cost recovery method is being applied by the seller. The entire balance is collected evenly over three years from the beginning of Year One to the end of Year Three. What amount of profit should be recognized in Year Two? 

a. Zero 

b. $4,000 

c. $8,000 

d. $20,000