2) Recognizing Revenue and Gross Profit (14Points). Questions #6 #8 worth 2 pts

Question

2) Recognizing Revenue and Gross Profit (14Points). Questions #6 #8 worth 2 pts ea. On December 15, 2017, Rjgsby Sales Co. sokd a tract of land that cost $1,800,000 for $3,600,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of S500,000 with the balance in two equal annual installments payable on December 15, 2018, and December 15, 2019. Igmore interest charges. Rigsby has a December 31 year-end. Hint: Set-up a table. I. In 2017, Rigsby woukd recognize realioed gross profit of A. $250,000 B. $125,000. C. $900,000. D. $100,000. 2. In 2018, Rigsby woukd recognice realized gross proft of B. S387,500. C. $300,000. D. $775,000. Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise will be in salable condition. Therefore, Reliable uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2016. Colections on this sale were $20,000 n 2016, $25,000 in 2017, and S10,000 in 2018. Hint: Set-up a table. 3. In 2016, Reliable would recognize gross profit of A. S 0, B. $25,000. C. $ 8,090. D. $ 8,333, 4. In 2017, Reliable woukd recognize gross profit of A. $0. B. $15,000. C. $ 5,000. D. $10,000. 5. In 2018, Reliable would recognize gross proft of B. S 15,000. C. $10,000. D. $20,000.

Explanation / Answer

1. Answer is A.

2. Answer is D

Working:

3. Answer is A.

4. Answer is B.

5. Answer is D.

Under the cost recovery system gain is not recognized until the total cost is recovered.

Cost Sale value Gain Gross margin 1800000 3600000 1800000 50% Year Instalment Gain % Gain Recognized 2017 500000 50% 250000 2018 1550000 50% 775000 2019 1550000 50% 775000 T o t a l 3600000 1800000

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