On January 31, year 6, Roy sold investment property he purchased five years ago for $10,000 to Hal for $18,000 Hal made a $8,000 down payment on the date of sale, a $6,000 payment on January 31 of year 2 and the balance on January 31, year 3.In addition, the Hal paid 6 percent interest on the unpaid balance.How much income should Roy recognize in years 1, 2, and 3 assuming he used the installment method?

Question

Quizplus · Accepted Answer

The correct answer is C: $4,444 in year 1.The installment method is used to recognize income from the sale of property over the period in which payments are received. The gross profit on the sale is $8,000 ($18,000 - $10,000). The contract price is $18,000. The gross profit ratio is 44.44% ($8,000 / $18,000). In year 1, Roy received $8,000 in payments. The amount of income recognized in year 1 is $4,444 ($8,000 x 44.44%).

On January 31, Year 6, Roy Sold Investment Property He