The Alliance Corporation introduced a new line of product the profitability of which is quite uncertain.This uncertainty has resulted in Alliance choosing to use the cost recovery method to account for this product.
The following information relating to the new product line is available for the year 2014:
Required:
1.Explain the general approach of the cost recovery method and when it should be used.
2.Record the journal entries for the new product for 2014 and 2015 based on the information given above.
3.How and in what amount would the deferred gross margin be presented on the balance sheet of Alliance at December 31,2014?
4.How does the cost recovery method differ from the installment sales method?
Definitions:
Silver
A precious metal with high conductivity and reflectivity, used in currency, jewelry, and numerous industrial applications.
Troy Oz.
A unit of measure for weight that is traditionally used for precious metals. One troy ounce is approximately 31.1035 grams.
Put Option Contracts
Financial contracts allowing the holder to sell an asset at a specified price within a fixed time period.
Lbs
An abbreviation for pounds, a unit of weight commonly used in the United States and the British imperial system; not directly a financial term unless related to commodities trading.
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