Question

Carol and leslie enter into a contract stating that carol will pay leslie $650 per month for the next 20 years. carol will live in the house and pay all expenses including property taxes, insurance, and maintenance costs. leslie will continue to hold the title until the property is paid off. what kind of contract do they have

Answer 1

They are in Installment Sales Contract.

What is an Installment Sales contract?

Any contract or agreement, including a contract for deed, bond for deed, or any other sale or legal device whereby a seller agrees to sell and the buyer agrees to buy residential real estate, in which the consideration for the sale is payable in installments for a period of at least one year after the date of sale, and the seller retains an interest or security for the purchase price or otherwise in the property, is referred to as an "installment sales contract" or simply as "contract."

Revenue recognition using the installment sales technique is postponed until the sale's cash is received. Because revenue is not immediately recognized at the moment of sale, the installment sales method is a conservative way to recognize revenue.

Only when partial ownership is transferred at the time of sale is the installment sales technique used. The technique is also applied when there is some doubt regarding the amount that will be collected (therefore, it would be inappropriate to recognize all revenue at the time of sale).

Therefore, Carol and Leslie are in Installment Sales Contract.

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