On April 30, Green Ltd. sold land with a book value of $600,000 to Brown Ltd. for its market value of $800,000. Brown Ltd. gave Green Ltd. a 12 percent, $800,000 note secured only by the land. At the date of sale, Brown Ltd. was in a very poor financial position and its continuation as a going concern was very questionable. Green Ltd. should:

Question

Quizplus · Accepted Answer

Given Brown Ltd.'s poor financial position and questionable continuation as a going concern, Green Ltd. should use the cost recovery method of accounting. This method defers the recognition of profit until the cash payments received from the sale exceed the cost of the sold asset, addressing the uncertainty of collecting the note receivable.