A Firm Using the Instalment Method of Revenue Recognition Repossessed

question 46

Essay

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).

---

Definitions:

Corpus Callosum

A large bundle of nerve fibers connecting the two cerebral hemispheres of the brain, facilitating communication and coordination between them.

Dura Mater

The outer membrane covering the brain and spinal cord.

Paralyses

The loss of muscle function in part of your body, often resulting from damage to the nervous system.

Spastic

Relating to or affected by muscle spasms or involuntary contractions.