Question

. In 2002, Argo, Co. bought 10 acres of commercial zoned land for $2,000,000. It sold the land to a developer in 2018 for $5,000,000. The developer paid Argo $1,000,000 at the closing of the sale and gave Argo a promissory note and mortgage for the remaining $4,000,000, plus 5% interest. The note is due in full on 12/31/2019. How much profit will Argo report on the sale for 2018, if Argo uses the installment method to account for this sale? a. $600,000 b. $1,000,000 c. $3,000,000 d. $5,000,000 19. Using the same information as in Question 18, how much profit will Argo report on the sale for 2018, if Argo uses the cost recovery method to account for this sale? a. $300,000 b. $600,000 c. $1,000,000 d. None

Answer 1

Answer:

18) a. $600,000

19) d. None

Explanation:

18)

ratio of profit to sales value = (profit/sales)*100

                                  = [($5,000,000 - $2,000,000)/($5,000,000)]*100

                                  = 60%

using the installment method, the profit that Argo will report for 2009 is:

cash received*ratio of profit to sales

$1,000,000*60% = $600,000

Therefore, the profit that Argo will report for 2009 is $600,000.

19)

for the cost recovery method, Argo would not recognize any profit until the cash amounts paid by the builder exceeded Argo's purchase cost of $2,000,000.