Question

On December 15, 2013, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2014, and December 15, 2015. Ignore interest charges. Rigsby has a December 31 year-end. In its December 31, 2013, balance sheet, Rigsby would report:
a. Realized gross profit of $100,000.
b. Deferred gross profit of $100,000.
c. Installment receivables (net) of $3,200,000.
d. Installment receivables (net) of $4,

Answer 1

Answer:

a. Realized gross profit of $100,000.

Explanation:

In 2013, Rigsby Sales Co would realize:

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

Gross profit percentage = 0.20

Gross profit percentage = 20%

Gross profit to be realized is

Gross profit = Installment received * Percentage of gross profit

Gross profit = $500,000*20%

Gross profit = $100,000