A Seller Is Using the Cost-Recovery Method for a Sale

question 50

Multiple Choice

A seller is using the cost-recovery method for a sale. Interest will be earned on the future payments. Which of the following statements is not correct?

• A) After all costs have been recovered, any additional cash collections are included in income.
• B) Interest revenue may be recognized before all costs have been recovered.
• C) The deferred gross profit is offset against the related receivable on the balance sheet.
• D) Subsequent income statements report the gross profit as a separate item of revenue when it is recognized as earned.

---

Definitions:

Personal Satisfaction

A subjective measure of fulfillment or happiness that an individual derives from accomplishments, possessions, or relationships.

Mechanical Test

A method or procedure used to evaluate the mechanical properties of materials, components, or systems.

Liquidated Damages

The stipulation by the parties to a contract of the sum of money to be recovered by the aggrieved party in the event of a breach of the contract by the other party.

Consequential Damages

Losses that arise not directly from a breach of contract but as a foreseeable result of the breach, requiring compensation.