Question

An enterprise sells inventory for 80,000 that had an inventory cost of 40,000. The terms of...

An enterprise sells inventory for 80,000 that had an inventory cost of 40,000. The terms of the sale involve payments receivable of 10,000 in the first year, 45,000 in the second year, and 25,000 in the third year. The buyer of the inventory is a new firm with no credit history.

14. If the cost-recovery method of revenue recognition is used, the amount of gross profit to be recognized in the second year is?

Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Gross profit to be recognized in the second year is 15000.

Explanation :

As per cost recovery method, gross profit will be recognized in that year when payment receivable will exceed total inventory cost.

Sale price of inventory = 80000

Inventory cost = 40000

Payment receivable in the first year = 10000

Inventory Cost to be recovered in the following year =

Total Inventory cost - Payment receivable in the first year

= 40000 - 10000 = 30000

Payment receivable in the second year = 45000

Gross profit to be recognized in the second year =

Payment receivable in the second year - Inventory Cost to be recovered in the following year

= 45000 - 30000 = 15000

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A shareholder transfers inventory (which cost him $40,000) in exchange for 80% of a corporation’s common...
A shareholder transfers inventory (which cost him $40,000) in exchange for 80% of a corporation’s common stock shares (worth $45,000) and $5,000 cash. How much gain does the shareholder recognize on the transaction? A. $5,000 B. $10,000 C. No Gain is Recognized D. ($5,000
Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably...
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 $30,000 was sold for $55,000 in 2020. Collections on this sale were $20,000 in 2020, $15,000 in 2021, and $20,000 in 2022. In 2021, Reliable would recognize gross profit of: Multiple Choice $0. $6,000....
James Bakery sells cupcakes to William's Restaurant. The credit terms are 1%/5/net 15. The selling price...
James Bakery sells cupcakes to William's Restaurant. The credit terms are 1%/5/net 15. The selling price is $1.5 per cupcake. The cost per cupcake is $1.00. James' uses a perpetual inventory system. James' most recent sale is for 500 cupcakes. What amounts are entered into each account to record the transaction in which account is paid within the discount period. (enter each answer using a number with two decimal places and no dollar signs) Revenue Cost of Goods Sold Accounts...
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms...
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $25,000. The merchandise had cost Mesa $17,050. Assume that both buyer and seller use a perpetual inventory system and the gross method. 1. Prepare entries that the buyer records for the (a) purchase, (b) cash payment within the discount period, and (c) cash payment after the discount period. 2. Prepare entries that the seller records for...
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms...
Santa Fe Retailing purchased merchandise “as is” (with no returns) from Mesa Wholesalers with credit terms of 2/10, n/60 and an invoice price of $16,300. The merchandise had cost Mesa $11,117. Santa Fee Retailing paid $10,000 for the merchandise six days after the invoice date. The remaining balance was paid 45 days after the invoice date. Assume that both buyer and seller use the gross method. REQUIRED: 1. Prepare entries that the buyer records for the (a) purchase and (b)...
Problem 16-09 Cost of Trade Credit Grunewald Industries sells on terms of 3/10, net 30. Gross...
Problem 16-09 Cost of Trade Credit Grunewald Industries sells on terms of 3/10, net 30. Gross sales last year were $4,477,500 and accounts receivable averaged $412,500. Half of Grunewald's customers paid on the 10th day and took discounts. What are the nominal and effective costs of trade credit to Grunewald's nondiscount customers? (Hint: Calculate daily sales based on a 365-day year, calculate the average receivables for discount customers, and then find the DSO for the nondiscount customers.) Do not round...
Balance sheet December 31 Assets 2007 2006 Cash $25,000 $40,000 Short term investments 15,000 60,000 Accounts...
Balance sheet December 31 Assets 2007 2006 Cash $25,000 $40,000 Short term investments 15,000 60,000 Accounts receivable 50,000 30,000 Inventory 50,000 70,000 Property, plant and equipment (net) 160,000 200,000 Total assets $300,000 $400,000 Liabilities and stockholders equity    Accounts payable $20,000 $30,000 Short term notes payable 40,000 90,000 Bonds payable 80,000 160,000 Common stock 60,000 45,000 Retained earnings 100,000 75,000 Total liabilities and stockholders equity $300,000 $400,000 Income statement (for the year ended December 31, 2007) Net sales $360,000 Cost...
Sushi House has budgeted sales revenue as follows: June July August Credit Sales $85,000 $80,000 $72,000...
Sushi House has budgeted sales revenue as follows: June July August Credit Sales $85,000 $80,000 $72,000 Cash Sales 14,000 25,000 32,000 Total Sales $99,000 $105,000 $104,000 Past experience indicates that 70% of the credit sales will be collected in the month of sale and the remaining 30% will be collected in the following month. Purchases of inventory are all on credit and 60% is paid in the month of purchase and 40% in the month following purchase. Budgeted inventory purchases...
Company provided the following information related to its inventory sales and purchases for December Year 1...
Company provided the following information related to its inventory sales and purchases for December Year 1 and the first quarter of Year 2: Dec. Year 1 Jan. Year 2 Feb. Year 2 Mar. Year 2 (Actual) (Budgeted) (Budgeted) (Budgeted) Cost of goods sold $80,000 $140,000 $170,000 $120,000 Desired ending inventory levels are 25% of the following month's projected cost of goods sold. Budgeted purchases of inventory in January Year 2 would be: Select one: a. $147,500 b. $180,000 c. $165,000...
Sales-Related Transactions Showcase Co., a furniture wholesaler, sells merchandise to Balboa Co. on account, $57,900, terms...
Sales-Related Transactions Showcase Co., a furniture wholesaler, sells merchandise to Balboa Co. on account, $57,900, terms n/30. The The cost that is reported as an expense when goods is sold.cost of the goods sold is $34,700. Showcase issues a A form used by a seller to inform the buyer of the amount the seller proposes to credit to the account receivable due from the buyer.credit memo for $11,600 for merchandise returned prior to Balboa paying the original invoice. The cost...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT