Real estate sales; gain recognition
Response to the following problem:
On April 1, 2016, the Apex Corporation sold a parcel of underdeveloped land to the Applegate Construction Company for $2,400,000. The book value of the land on Apex's books was $480,000. Terms of the sale required a down payment of $120,000 and 19 annual payments of $120,000 plus interest at an appropriate interest rate due on each April 1 beginning in 2017. Apex has no significant obligations to perform services after the sale.
Required:
1. Prepare the necessary entries for Apex to record the sale, receipt of the down payment, and receipt of the first installment assuming that Apex is able to make a reliable estimate of possible uncollectible amounts (that is, profit is recognized upon delivery). Ignore interest charges.
2. Repeat requirement 1 assuming that Apex cannot make a reliable estimate of possible uncollectible amounts and decides to use the installment sales method for profit recognition.