On December 15, 2016, Rigsby Sales Co. sold a tract of land that cost $3,600,000 for $4,500,000.
Question:
On December 15, 2016, 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, 2017, and December 15, 2018. Ignore interest charges. Rigsby has a December 31 year-end.
At December 31, 2017, Rigsby would report in its balance sheet:
A. Realized gross profit of $500,000.
B. Deferred gross profit of $400,000.
C. Realized gross profit of $400,000.
D. Cost of installment sales $1,600,000.
12/15/2017Cash2,000,000
Installment receivables2,000,000
Deferred gross profit400,000
Realized gross profit400,000
Balance sheet:
Deferred gross profit: $800,000 - 400,000 = $400,000
Realized gross profit of $400,000 would be reported in the income statement.
