On July 1, 2018, Apache Company, a real estate developer, sold a parcel of land
ID: 2411557 • Letter: O
Question
On July 1, 2018, Apache Company, a real estate developer, sold a parcel of land to a construction company for $3,895,000. The book value of the land on Apache’s books was $1,640,000. Terms of the sale required a down payment of $205,000 and 18 annual payments of $205,000 plus interest at an appropriate interest rate due on each July 1 beginning in 2019. How much revenue will Apache recognize for the sale (ignoring interest), assuming that it recognizes revenue at the point in time at which it transfers the land to the construction company?
Explanation / Answer
Revenue for 2018 = $3,895,000
Revenue for 2019 = $0
Under the accrual system of accounting, revenue is recorded when earned. Apache Company should record the revenue when land is transferred, as the it's performance obligation is complete.
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