Reliable Enterprises sells distressed merchandise on extended credit terms. Coll

Question

Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured, and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise is in condition to be re-sold. Therefore, Reliable uses the cost recovery method. Merchandise costing $31,250 was sold for $57,500 in 2017. Collections on this sale were $21,700 in 2017, $14,400 in 2018, and $21,400 in 2019. In its 2018 year-end balance sheet, Reliable would report installment receivables (net) of:

$ 0.

$5,500.

$21,400.

$14,400.

Explanation / Answer

Answer:-

S.no. Particulars Profit Amount (NOTE. 1) Cost Recovered

1. 2017 9906 11794 (21700-9906)

2. 2018 6574 7826 (14400-6574)

3. 2019 9770 11630 (21400-9770)

Ans. = In 2018 hence its report installment of amount receivable of Rs.21400 (11630+9970)

Note. 1 :-

Gross Profit on sale = 57500 - 31250 = 26250

1'st installment profit should be recognize = 26250 * 21700 / 57500 = 9906

2'nd installment profit should be recognize = 26250 * 14400 / 57500 = 6574

3'rd installment profit should be recognize = 26250 * 21400 / 57500 = 9770

Related Questions

Navigate

• Browse (All)
• Browse R
• Subjects