Question

On December 15, 2021, Rigsby Sales Co. sold a tract of land that cost $3,500,000 for $5,000,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $450,000 with the balance in two equal annual installments payable on December 15, 2022, and December 15, 2023. Ignore interest charges. Rigsby has a December 31 year-end. In 2022, Rigsby would recognize realized gross profit of:

Answer 1

In 2022, Rigs-by gross profit=$682,500

Step-by-step explanation:

Profit=Price at which land is sold- Actual price of land

Profit=$5,000,000- $3,500,000

Profit=$1,500,000

Gross Profit=Profit/Price at which land is sold

Gross Profit=$1,500,000/$5,000,000

Gross Profit=0.3=30%

In 2022, Rigs-by gross profit=
`Gross\ Profit*(Price\ at\ which\ land\ is\ sold\ -\ down\ payment )/(2)`

In 2022, Rigs-by gross profit=
`0.3*(\$5,000,000-\$450,000)/(2)`

In 2022, Rigs-by gross profit=$682,500