Question

The cost-recovery method is used by sellers when there is a reasonable basis for estimating collectibility?

1) is prohibited under current GAAP due to its conservative nature
2) requires a company to defer profit recognition until all cash payments are received from the buyer
3) is used by sellers when there is a reasonable basis for estimating collectibility
4) recognizes total revenue and total cost of goods sold in the period of sale

Answer 1

The cost-recovery method is used by sellers when there is a reasonable basis for estimating collectibility. It requires a company to defer profit recognition until all cash payments are received from the buyer.

Step-by-step explanation:

The cost-recovery method is used by sellers when there is a reasonable basis for estimating collectibility. It allows sellers to defer profit recognition until all cash payments are received from the buyer. Therefore, Option 2) requires a company to defer profit recognition until all cash payments are received from the buyer.