On November 15, 2016, LaGrow Developers sold a parcel of land for $4,000,000. 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 cost-recovery method, in its December 31, 2016 balance sheet, the company would report ________.
A) $1,000,000 net installment accounts receivable
B) $200,000 net installment accounts receivable
C) $1,600,000 net installment accounts receivable
D) $2,000,000 net installment accounts receivable

Question

Quizplus · Accepted Answer

Under the cost-recovery method, revenue is recognized only after the cost of the asset sold is fully recovered. The down payment of $2,000,000 covers part of the original cost of $3,600,000, leaving $1,600,000 to be recovered. Therefore, the net installment accounts receivable would be $1,600,000.

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