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Find what amount of the adjustment on inventory

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Reference no: EM132764449

J&B Co. which sells in installment basis, recognizes at year-end, gross profit based on collections made Installment Receivable:

                     Jan 1.             Dec. 31

19x7           120,0000           0

19x8         1,722,300            337,200

19x9          2,050,450

                          19x7                 19x8            19x9

Sales            1,900,000       2,160,000    3,010,000

Cost of sales  1,235,000        1,425,000         1,896,300

In 19x9, the company repossessed merchandise with a resale value of 8,500 from a customer who defaulted on hispayments. The account was incurred for 27,000 in 19x8, and 16,000 had been paid prior to the default. As collections are made, the company debits CASH and credits the related INSTALLMENT RECEIVABLE; for defaults, the company debits INVENTORY OF REPOSSESSED MERCHANDISE and also credits the related INSTALLMENT RECEIVABLE account.

Problem 1: The amount of the adjustment on Inventory of Repossessed Merchandise would:

a. 0

b. 2,500

c. 3,740

d. 5,645

Reference no: EM132764449

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