Follow Us :

Financial Reporting and Analysis Q79

79During 2013, Company A sold a piece of land with a cost of 3 million to Company B for $5 million. Company B made a $1 million down payment with the remaining balance to be paid over the next 5 years. It has been determined that there is significant doubt about the ability and commitment of the buyer to complete all payments. Company A would most likely report a profit in 2013 of:
  • Option : B
  • Explanation : Under the installment method, the portion of the total profit that is recognized in each period is determined by the percentage of the total sales price for which the seller has received cash. For Company A, 2/5*1 = $0.4 million. Note: cost recovery method could be used in this case, but the reported profit would be 0.
Cancel reply

Your email address will not be published. Required fields are marked *


Cancel reply

Your email address will not be published. Required fields are marked *