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 $32,500 was sold for $55,500 in 2017. Collections on this sale were $21,900 in 2017, $14,400 in 2018, and $19,200 in 2019. In 2019, Reliable would recognize gross profit of:________

Answer 1

Answer:

$23,000

Explanation:

Cost Price of Merchandise = $32,500

Selling Price = $55,500

In 2017, 2018 and 2019, Reliable recovers $21,900, $14,400 and $19,200.

By 2019, Reliable Enterprises had recovers all the total amount it sold the merchandise  which is ($21,900 + $14,400 + $19,200)

($21,900 + $14,400 + $19,200) =  $55,500

Total Amount recovered -- Cost price of Merchandise = Gross Profit

$55,500 - $32,500 = $23,000

Therefore,  in 2019, Reliable would recognize gross profit of  $23,000