Question:
Refer to the situation described in BE 5–1. How much gross profit will Apache recognize in both 2013
and 2014 applying the cost recovery method?
Answer:
No gross profit will be recognized in either 2013 or 2014. Gross profit will not be recognized until the
entire $1,200,000 cost of the land is recovered. In this case, it will take eight payments to recover the cost
of the land ($1,200,000 $150,000 = 8), so gross profit recognition will equal 100% of the cash
collected beginning with the ninth installment payment.
Refer to the situation described in BE 5–1. How much gross profit will Apache recognize in both 2013
and 2014 applying the cost recovery method?
Answer:
No gross profit will be recognized in either 2013 or 2014. Gross profit will not be recognized until the
entire $1,200,000 cost of the land is recovered. In this case, it will take eight payments to recover the cost
of the land ($1,200,000 $150,000 = 8), so gross profit recognition will equal 100% of the cash
collected beginning with the ninth installment payment.
