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A corporation sold a tract of land for $525,000 that had originally cost $350,000.The buyer will make three annual payments of: $250,000; $125,000; and $150,000.Ignore interest and use the instalment method.
-The amount of gross profit recognized in the first year is:
A)$0
B)$58,333
C)$83,333
D)$175,000

Question

Quizplus · Accepted Answer

The instalment method recognizes profit based on the proportion of each payment that represents profit. To calculate the proportion of profit, divide the total profit ($175,000) by the total sales price ($525,000).
$175,000/$525,000 = 1/3 or 33.33%
The first payment of $250,000 represents one-third of the total sales price, so the profit recognized is $83,333 (33.33% of $250,000). Therefore, the correct answer is (C) $83,333.

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