Question

On December 15, 2018, Rigsby Sales Co. sold a tract of land that cost $3,400,000 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. At December 31, 2019, Rigsby would report in its balance sheet:

Answer 1

Solution :
..Deferred gross profit of $721600.
Explaination :
gross profit percentage = (sale price - cost ) / sale price * 100
(5,000,000 - 3,400,000) / 5,000,000 *100	32%
Therefore, Gross profit % = 32%
realised gross profit in 2019 = amount received in 2019 * gross profit percentage.
amount received in 2019 = [(5,000,000 - 490,000) / 2] =>$22,55,000
realised gross profit in 2019 = $2255,000*32% =>$.721,600(this is reported in income statement).
deferred gross profit in 2019 = amount to be received in 2020 * gross profit percentage.
$2255000 * 32% =>$721600. (this is reported in 31 december 2019 balance sheet).