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 2017. Collections on this sale were $20,000 in 2017, $15,000 in 2018, and $20,000 in 2019.
-In 2019, Reliable would recognize gross profit of:
A) $0.
B) $6,000.
C) $8,000.
D) $20,000.

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 $30,000 was sold for $55,000 in 2017. Collections on this sale were $20,000 in 2017, $15,000 in 2018, and $20,000 in 2019. 
-In 2019, Reliable would recognize gross profit of:
A) $0.
B) $6,000.
C) $8,000.
D) $20,000.

Quizplus · Accepted Answer

11ea937b_364b_a991_a419_b1ff8206299a_TB2599_00 The entire $20,000 payment received in 2019 is recognized as gross profit.

Reliable Enterprises Sells Distressed Merchandise on Extended Credit Terms