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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 

Top Answer

Answer D) $100,000 ... View the full answer

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