Question

On december 15,2013, Rigsby Sales Co. sold a tract of land that cost $3600000 for $4500000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500000 with the balance in two equal annual installments payable on December 15,2014, and December 15,2015. Ignore interest charges. Rigsby has a December31 year-end
Q1: in 2013, Rigsby would recognize realized gross profits of

Q2: in 2014, Rigsby would recognize realized gross profits of

Q3: In its December 31, 2013, balance sheet, Rigsby would report:

A Realized gross profit of $100000

B: Deferred gross profit of $100000

C: Installment receivables(net) of $3200000

D: Installment receivables(net) of $4000000

Q4: At Dec 31,2014, Rigsby would report in its balance sheet:

A: Realized gross profit of $500000

B: Deferred gross profit of $400000

C:Realized gross profit of $400000

D: Cost of installment sales $1600000

Answer 1

Answer:

Rigsby would recognize realized gross profit of:

Q1: in 2013, Rigsby would recognize realized gross profits of

A Realized gross profit of $100000

Explanation:

The installment method is an approach to revenue recognition in which the business owner defers gross profit on a sale until receiving cash for the sale from the buyer.

Gross profit % = ($4,500,000 - 3,600,000)/$4,500,000 = 20%

2013: 20% x $500,000 = $100,000