Scan QR code or get instant email to install app
Question:
During 2009, Quintus Inc. sold a piece of land to Solonius Inc. for $10,000,000. Quintus received $4,000,000 during 2009, and will receive the remaining amount the following year. It purchased this piece of land for $3,000,000 in 1999. The profit that Quintus will report in 2009 is closest to:
Installment Method and Cost Recovery Method
A
$2,800,000 and $1,000,000
explanation
Under the installment method, the percentage of profit recognized in a given period equals the percentage of total cash received during the period.
Profit recognized during 2009 = 4m/10m x (10m − 3m) = $2.8m
Under the cost recovery method, profits are only recognized once total cash received exceeds total cost.
Profit recognized during 2009 = 4m − 3m = $1m
Take more free practice tests for other PASSEMALL topics with our cfa sample questions now!
Related Information
Comments