Question

On December 15, 2021, Rigsby Sales Co. sold a tract of land that cost $3,800,000 for $5,000,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $490,000 with the balance in two equal annual installments payable on December 15, 2022, and December 15, 2023. Ignore interest charges. Rigsby has a December 31 year-end.
(1) in 2021, Rigsby would recognize realized gross profits of

(2) in 2021, Rigsby would recognize realized gross profits of

(3) In its December 31, 2022, balance sheet, Rigsby would report:

Answer 1

Answer:

(a) In 2021,

$\frac{5,000,000-3,800,000}{5,000,000}\times100$

  = 0.24

  = 24%

24% of $490,000 = $117,600

In 2021, Rigsby Sales Co would realize the gross profit of $117,600.

(b) In 2022,

$0.24\times\frac{5,000,000-490,000}{2}$

  = 0.24 × 2,255,000

  = $541,200

In 2022,  Rigsby Sales Co would realize the gross profit of $541,200.

(c)  In its December 31, 2022, balance sheet, Rigsby would report:

Realized gross profit of $541,200