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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 profit to be recognized in year two is:
A)$0
B)$41,667
C)$58,333
D)$175,000

Question

Quizplus · Accepted Answer

The profit on the sale is $175,000 ($525,000 - $350,000). The total sale price is $525,000, so the profit percentage is $175,000 / $525,000 = 1/3 or 33.33%. In year two, the payment received is $125,000, so the profit recognized is 1/3 of $125,000, which is $41,667.

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