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