A firm using the instalment method of revenue recognition repossessed an item it sold for $40,000 (cost $24,000) after the customer stopped remitting cash. Only $26,000 was paid by the customer to the date of repossession at which time the item is worth only $8,000.
(1) Determine the accounting gain or loss on repossession.
(2) Determine the economic gain or loss-the change in the value of the firm-as a result of the sale and repossession.
(3) Reconcile total accounting earnings with the value you computed in (2).

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The Answer of A firm using the instalment method of revenue recognition repossessed an item it sold for $40,000 (cost $24,000) after the customer stopped remitting cash. Only $26,000 was paid by the customer to the date of repossession at which time the item is worth only $8,000.
(1) Determine the accounting gain or loss on repossession.
(2) Determine the economic gain or loss-the change in the value of the firm-as a result of the sale and repossession.
(3) Reconcile total accounting earnings with the value you computed in (2).

A Firm Using the Instalment Method of Revenue Recognition Repossessed