On November 15, 2016, LaGrow Developers sold a parcel of land for $5,000,000. They had originally paid $3,600,000 for the land. The terms of the sale called for a $1,000,000 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 cost-recovery 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.)
A) $0
B) $1,000,000
C) $280,000
D) $1,400,000

Question

Quizplus · Accepted Answer

Under the cost-recovery method, no gross profit is recognized until the cost of the land ($3,600,000) is fully recovered. By the end of 2017, LaGrow has only received $2,500,000 ($1,000,000 down payment + $1,500,000 installment), which is less than the cost. Therefore, no gross profit is recognized in 2017.

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