On December 15, 2018, Rigsby Sales Co. sold a tract of land that cost $3,700,000

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 $420,000 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 its December 31, 2018, balance sheet, Rigsby would report:

Multiple Choice

Installment receivables (net) of $3,389,200.

Deferred gross profit of $109,200.

Realized gross profit of $109,200.

Installment receivables (net) of $4,580,000.

Explanation / Answer

Sale: Instalment Receivable $5,000,000 Inventory $3,700,000 Deferred Gross Profit $1,300,000 Payment: Cash $420,000 Instalment Receivable $420,000 Deferred Gross Profit $109,200   Realized Gross Profit ($1,300,000 / $5,000,000 x $420,000) $109,200 Instalment Receivable ($5,000,000 -$420,000) $4,580,000 Deferred Gross Profit ($1,300,000 - $109,200) $1,190,800 Instalment Receivable (net) $3,389,200

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