On November 15, 2016, LaGrow Developers sold a parcel of land for $6,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $2,000,000 down payment, and the balance in two equal installments payable on November 15, 2017 and November 15, 2018. Disregard interest charges. LaGrow has a December 31 year-end. Refer to LaGrow Developers. Assuming that LaGrow uses the installment sales method, the company would recognize gross profit in 2017 of ________. (Do not round intermediary calculations, and round your final answer to the nearest whole dollar.)

Question

Quizplus · Accepted Answer

Under the installment sales method, gross profit is recognized in proportion to the cash received. The total gross profit is $2,400,000 ($6,000,000 - $3,600,000). The gross profit percentage is 40% ($2,400,000 / $6,000,000). In 2017, LaGrow receives $2,000,000, so the recognized gross profit is $800,000 (40% of $2,000,000).

On November 15, 2016, LaGrow Developers Sold a Parcel of Land