On December 15, 2018, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2019, and December 15, 2020. Ignore interest charges.
- Rigsby has a December 31 year-end. In 2019, Rigsby would recognize realized gross profit of:

Question

Quizplus · Accepted Answer

Gross profit % = ($4,500,000 - 3,600,000)/$4,500,000 = 20%
2018: 20% × $500,000 = $100,000
2019: 20% × [($4,500,000 - 500,000)/2] = $400,000