Final answer:
Under the cost-recovery method, Wilmington Co. should recognize $0 in revenue for 2014 because they have not fully recovered the $104,000 cost of the equipment with the first installment of $45,038 received.
Step-by-step explanation:
The student's question concerns the recognition of revenue using the cost-recovery method for a sale where a collection of the note is very uncertain. In 2014, Wilmington Co. should recognize revenue from the sale only to the extent of the cost recovered. Since Wilmington Co. sold equipment that cost $104,000 and received the first annual installment of $45,038 in 2014, they have recovered $45,038 of the cost. However, the actual revenue recognized would only be the profit portion of the installment received after the entire cost has been recovered.
Therefore, as Wilmington Co. still hasn't fully recovered the cost of the equipment by 2014, the revenue recognized in 2014 should be $0. Only after the cost of $104,000 is fully recovered, which would be in future installments, the excess over the cost will be recognized as revenue. So, for Wilmington's 2014 income, under the cost-recovery method, the answer is D. $0.