Nevada Real Estate Sales Company sells lots in its development in Dry Creek Canyon under terms calling for small cash down payments with monthly installment payments spread over a few years. Following are data on the company's operations for its first three years:

The total selling price of the lots sold in 1999 was \(\$ 3,000,000\), while general and administrative expenses (which are not included in the costs used to determine gross margin) were \(\$ 800,000\).

a. Compute net income for 1999 assuming revenue is recognized on the sale of a lot.

b. Compute net income for 1999 assuming use of the installment basis of accounting for sales and gross margin.

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1997 1998 1999 Gross margin rate. 45% 48% 50% Cash collected in 1999 from sales of lots made in $640,000 $800,000 $900,000