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Acct 304 Ch 5 EX Key - On December 15, 2006, Rigsby Sales...

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Acct 304 Ch 5 EX Key

Acct 304 Ch 5 EX Key - On December 15, 2006, Rigsby Sales...

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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
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77. At December 31, 2007, Rigsby would report in its balance sheet: A) Realized gross profit of $500,000. B)
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