I think the $250,000 should be a credit balance to deferred gross profit, thereby reducing current assets by $250,000.

Becker F-2 page 35

Futurepasser,

You may be right, but wouldn't that be more appropriate for installment sales when collectability is uncertain? It seems like this is almost more of a note receivable?

To calculate the credit for deferred gross profit you would have to know the gross profit percentage, which we dont know.  So only part of the 250,000 would be a credit?

Reading the question again, I think it makes sense.

A/R 500,000

Since we know this customer is required to make semiannual payments (2 times a year) of 125,000 * 2 = 250,000. The remaining balance can not be paid until the following year; which is year 2.

Hence this A/R is segregated into two components: a current portion A/R and non current portion A/R but is that the correct classification of this A/R?

Eh, I don't know then.

Maybe we're making it too complicated. 

Maybe just take the $250,000 that won't be paid within a year, deduct it from current assets, and you're done.

ay435,

I think you are right saying that it's just dividing A/R in current and long-term portion. There is no JE involved.

Usually, the installment A/R is the current asset as it considered to be w/in operating cycle of the business. In this problem, the special terms for this particular customer indicate that it could be not installment sales b/c of collectibility  but just a part of contract or negotitiation. In this case, we should divide A/R b/w current and long-term portion.