Question:
On April 1, 2013, the Apex Corporation sold a parcel of underdeveloped land to the Applegate
Construction Company for $2,400,000. The book value of the land on Apex’s books was $480,000.
Terms of the sale required a down payment of $120,000 and 19 annual payments of $120,000 plus
interest at an appropriate interest rate due on each April 1 beginning in 2014. Apex has no significant
obligations to perform services after the sale.
Required:
1. Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of
the first installment assuming that Apex is able to make a reliable estimate of possible uncollectible
amounts (that is, point of delivery profit recognition is used). Ignore interest charges.
2. Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectible
amounts and decides to use the installment sales method for profit recognition.
Answer:
Requirement 1
April 1, 2013
Installment receivables.......................................................................... 2,400,000
Land.................................................................................................. 480,000
Gain on sale of land.......................................................................... 1,920,000
To record installment sale
April 1, 2013
On April 1, 2013, the Apex Corporation sold a parcel of underdeveloped land to the Applegate
Construction Company for $2,400,000. The book value of the land on Apex’s books was $480,000.
Terms of the sale required a down payment of $120,000 and 19 annual payments of $120,000 plus
interest at an appropriate interest rate due on each April 1 beginning in 2014. Apex has no significant
obligations to perform services after the sale.
Required:
1. Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of
the first installment assuming that Apex is able to make a reliable estimate of possible uncollectible
amounts (that is, point of delivery profit recognition is used). Ignore interest charges.
2. Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectible
amounts and decides to use the installment sales method for profit recognition.
Answer:
Requirement 1
April 1, 2013
Installment receivables.......................................................................... 2,400,000
Land.................................................................................................. 480,000
Gain on sale of land.......................................................................... 1,920,000
To record installment sale
April 1, 2013
