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On December 15, 2006, Rigsby Sales Co. sold a tract of land that cost \$3,600,000 for \$4,500,000. Rigsby appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of \$500,000 with the balance in two equal annual installments payable on December 15, 2007, and December 15, 2008. Ignore interest charges. Rigsby has a December 31 year-end. 74. In 2006, Rigsby would recognize realized gross profit of: A) \$500,000. B) \$ 0. C) \$900,000. D) \$100,000. Answer: D Learning Objective: 2 Level of Learning: 3 Rationale: Gross profit % = (\$4,500,000 - 3,600,000)/\$4,500,000 = 20% 2006: 20% x \$500,000 = \$100,000 75. In 2007, Rigsby would recognize realized gross profit of: A) \$ 0. B) \$450,000. C) \$300,000. D) \$400,000. Answer: D Learning Objective: 2 Level of Learning: 3 Rationale: Gross profit % = (\$4,500,000 3,600,000)/\$4,500,000 = 20% 2006: 20% x \$500,000 = \$100,000 2007: 20% x [(\$4,500,000 500,000)/2] = \$400,000 76. In its December 31, 2006, balance sheet, Rigsby would report: A) Realized gross profit of \$100,000. B) Deferred gross profit of \$100,000. C) Installment receivables (net) of \$3,200,000. D) Installment receivables (net) of \$4,000,000. Answer: C Learning Objective: 2 Level of Learning: 3 Rationale: Sale: Installment receivables 4,500,000 Inventory 3,600,000 Deferred gross profit 900,000 Payment: Cash 500,000 Installment receivables 500,000 Deferred gross profit 100,000 Realized gross profit 100,000 Balance sheet: Installment receivables \$4,500,000 500,000 \$4,000,000 Deferred gross profit: \$900,000 100,000 800,000 Installment receivables (net) \$3,200,000 77. At December 31, 2007, Rigsby would report in its balance sheet: A) Realized gross profit of \$500,000. ... View Full Document

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