On January 1, 2015, Shaw Co. sold land that cost $840,000 for $1,120,000, receiving a note bearing interest at 10%. The note will be paid in three annual installments of $450,380 starting on December 31, 2015. Because collection of the note is very uncertain, Shaw will use the cost-recovery method. How much revenue from this sale should Shaw recognize in 2015?

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Quizplus · Accepted Answer

Under the cost-recovery method, no revenue is recognized until the costs recovered from the sale equal the initial cost of the asset. Since the total amount of the note is $1,351,140 and the initial cost of the land is $840,000, no revenue should be recognized in 2015.