On January 1, 2010, Walters, Inc.purchased a risky investment for $100.It was decided to use the cost recovery method of revenue recognition.Cash collections on accounts receivable related to the asset were as follows: $\begin{array}{ll}
2010 & \$ 70 \
2011 & 40 \
2012 & 30
\end{array}$
Which of the following represent the realized gross profit that Walters should recognize for each year?
$\begin{array}{llll}
&2010&2011&2012\
\text { I. } & \$ 0 & \$ 10 & \$ 30 \
\text { II. } & \$ 70 & \$ 40 & \$ 30 \
\text { III. } & \$ 0 & \$ 30 & \$ 30 \
\text { IV } & \$ 0 & \$ 110 & \$ 30
\end{array}$

A)I
B)II
C)III
D)IV

Question

On January 1, 2010, Walters, Inc.purchased a risky investment for $100.It was decided to use the cost recovery method of revenue recognition.Cash collections on accounts receivable related to the asset were as follows: $\begin{array}{ll}
2010 & \$ 70 \
2011 & 40 \
2012 & 30
\end{array}$
 Which of the following represent the realized gross profit that Walters should recognize for each year?
$\begin{array}{llll}
&2010&2011&2012\
\text { I. } & \$ 0 & \$ 10 & \$ 30 \
\text { II. } & \$ 70 & \$ 40 & \$ 30 \
\text { III. } & \$ 0 & \$ 30 & \$ 30 \
\text { IV } & \$ 0 & \$ 110 & \$ 30
\end{array}$

A)I
B)II
C)III
D)IV

Quizplus · Accepted Answer

The cost recovery method of revenue recognition recognizes revenue only after the initial cost of the asset has been recovered. Since Walters purchased the investment for $100 and all cash collections in each year were less than $100, no gross profit has been realized and thus, no revenue can be recognized. Therefore, the answer is only I as no gross profit was realized in any of the years.

On January 1, 2010, Walters, Inc 2010$70201140201230\begin{array}{ll}2010 & \$ 70 \\2011 & 40 \\2012 & 30\end{array}201020112012​$704030​

On January 1, 2010, Walters, Inc $\begin{array}{ll}2010 & \$ 70 \\2011 & 40 \\2012 & 30\end{array}$