Question

Iowa Development (ID) made the following land sales and had the following cash collections:

2012 sold Altoona land for 2,000,000 that cost ID $1,200,000. The land agreement required payments of $1,000,000 within one week of occupancy of the land, and the other $1,000,000 in 2013 ID received the $1,000,000 payment.

Assume ID cannot estimate uncollectible accounts accurately and recognizes revenue using the IFRS method for significant uncertainty in collectibility.

Required: Prepare journal entries to record the sale, cash collections, and recognition of gross profit (if appropriate) in 2012 and 2013.

Answer 1

	Journal Entries
	Sale
2012
1	Buyer A/c/Purchaser	2000000
	To Land		1200000
	To Gross Profit		400000
	To Deferred Gross Profit		400000
	(Being Profit Recognised in Proportion to Colletions)
2	Cash A/c	1000000
	To Buyer/Purchaser		1000000
	(Collection from Customers)
2013
1	Cash A/c	1000000
	To Buyer/Purchaser		1000000
	(Collection from Customers)
2	Deferred Gross Profit	400000
	To Gross Profit		400000
	(Being Deferred Gross Profit was Recognised)
Theory Source - Google
<div "="">Sales Under the Installment Method
Under the installment method, both revenue and the associated cost of goods sold are recognized at the time of the initial sale, but gross profit recognition is deferred until cash payments are received. This method requires the accountant to track the gross margin percentage for each reporting period, so the correct percentage can be recognized when the associated cash receipts arrive at a later date.