Question

On December 15, 2018, Rigsby Sales Co. sold a tract of land that cost $3,700,000 for $5,000,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $490,000 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:

Answer 1

$127,400

Step-by-step explanation:

Gross profit ratio = [(sale - cost) ÷ sale price] × 100

= [($5,000,000 - $3,700,000) ÷ $5,000,000] × 100

= 0.26 × 100

= 26%.

Gross profit on down payment is recognized in 2019:

= Down payment × Gross profit ratio

= $490,000 × 26%

= $127,400