Iowa Development (ID) made the following land sales and had the following cash c

Question

Iowa Development (ID) made the following land sales and had the following cash collections:

2012 sold Altoona land for 2,000,000 that cost ID $1,200,000. The land agreement required payments of $1,000,000 within one week of occupancy of the land, and the other $1,000,000 in 2013 ID received the $1,000,000 payment.

Required: Prepare journal entries to record the sale, cash collections, and recognition of gross profit in 2012 and 2013 using the installment sales method under U.S GAAP(Deferred gross profit method)

Explanation / Answer

2012

(a) Receivable a/c dr 2000000

to Land 1200000

to Deferred Revenue 800000

(b) Bank A/c dr 1000000

to Receivable a/c 1000000

(c) Deferred Revenue A/c 400000 (GP = 800000/2000000*100 = 40%) (1000000*40%)

to Profit on sale of Land 400000

2013

(a) Bank A/c dr 1000000

to Receivables 1000000

(c) Deferred Revenue a/c 400000

to Profit on sale of Land 400000

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