Question

On December 15, 2018, Rigsby Sales Co. sold a tract of land that cost $4,000,000 for $5,000,000. Rigsby appropriately uses the installment sales method of accounting for this transaction. Terms called for a down payment of $470,000 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 2018, Rigsby would recognize realized gross profit of:_____________.

Answer 1

deferred gross profit =$ 453,000

and realized gross profit is $453,000

Step-by-step explanation:

from the information given in the question , the required profit is related with deferred gross profit.

step 1 calculate gross profit percentage

`Gross\ profit\ percentage =( (Installment\ sales - Cost\ of\ installment\ sales))/( Installment\ sales)`

`= (5,000,000 - 4,000,000)/(5,000,000)`

= 20%

step 2 calculate deferred gross profit

deferred profit = (Total sales of installment - down payment ) × profit percentage

Deferred profit = 5,000,000 - 470,000 - 2,265,000) × 20%

where $2,265,000 represents 1st equal installment of remaining balance

deferred gross profit =$ 453,000

and realized gross profit is $453,000