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# sold a tract of land that cost \$3,600,000 for \$4,500,000.

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On December 15, 2014, Absolute Sales Co. sold a tract of land that cost \$3,600,000 for \$4,500,000. Absolute uses the installment sale method of accounting for this transaction. Terms called for a down payment of \$500,000 with the balance to be paid in two equal annual installments of \$2,000,000 payable on December 15, 2015, and December 15, 2016. Absolute's

year-end December 31st. Assume the annual installments were received when due.

1.) In their 2014 income statement, Absolute would recognize realized gross profit of:

1. A) \$500,000
2. B) \$ 0
3. C) \$900,000
4. D) \$100,000

2.) In their 2015 income statement, Absolute would recognize realized gross profit of:

1. A) \$ 0
2. B) \$450,000
3. C) \$300,000
4. D) \$400,000

3.) In their December 31, 2014 balance sheet, Absolute would report net installment receivable of:

1. A) \$3,200,000
2. B) \$4,000,000
3. C) \$0
4. D) \$3,100,000

4.)Suppose Absolute uses cost recovery to account for this sale. In their 2014 income statement, Absolute would recognize realized gross profit of:

1. A) \$500,000
2. B) \$0
3. C) \$900,000
4. D) \$100,000

5.)Suppose Absolute uses cost recovery to account for this sale. In their December 31, 2014 balance sheet, Absolute would report net installment receivable of:

1. A) \$3,200,000
2. B) \$4,000,000
3. C) \$0
4. D) \$3,100,000

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