Fryman Furniture uses the installment-sales method. No further collections could be made on an account with a balance of $24,000. It was estimated that the repossessed furniture could be sold as is for $7,200, or for $8,400 if $400 were spent reconditioning it. The gross profit rate on the original sale was 40%. The loss on repossession was
A) $6,400.
B) $6,000.
C) $16,000.
D) $16,800.

Question

Quizplus · Accepted Answer

The loss on repossession is calculated as the difference between the unpaid balance and the net realizable value of the repossessed furniture. The unpaid balance is $24,000, and the net realizable value after reconditioning is $8,400 - $400 = $8,000. The loss is $24,000 - $8,000 = $16,000. However, since the gross profit rate is 40%, the cost of goods sold is 60% of $24,000, which is $14,400. Therefore, the loss is $24,000 - $14,400 - $8,000 = $6,400.

Fryman Furniture Uses the Installment-Sales Method