York’s Rustic Furniture began operations on January 1, 2014. To build its customer base, the company permitted customers, regardless of their credit history, to pay in installments when they made a major purchase. Installment sales amounted to $750,000 in 2014; these items cost York’s Rustic Furniture $400,000. Given the questionable credit histories of many of its customers and its inability to use past history to estimate collection rates, the company adopted the cost recovery method and accordingly recognized $75,000 in gross profit.
1. How much cash did the company collect on installment sales in 2014?
2. Assume that York’s Rustic Furniture had instead used the installment sales method. What amount of gross profit would it have deferred in 2014?