Question:
On July 1, 2013, Apache Company sold a parcel of undeveloped land to a construction company for
$3,000,000.
The book value of the land on Apache’s books was $1,200,000. Terms of the sale required a down
payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due
on each July 1 beginning in 2014. Apache has no significant obligations to perform services after the sale.
How much gross profit will Apache recognize in both 2013 and 2014 assuming point of delivery profit
recognition?
Answer:
2013 gross profit = $3,000,000 – 1,200,000 = $1,800,000
2014 gross profit = 0
On July 1, 2013, Apache Company sold a parcel of undeveloped land to a construction company for
$3,000,000.
The book value of the land on Apache’s books was $1,200,000. Terms of the sale required a down
payment of $150,000 and 19 annual payments of $150,000 plus interest at an appropriate interest rate due
on each July 1 beginning in 2014. Apache has no significant obligations to perform services after the sale.
How much gross profit will Apache recognize in both 2013 and 2014 assuming point of delivery profit
recognition?
Answer:
2013 gross profit = $3,000,000 – 1,200,000 = $1,800,000
2014 gross profit = 0
