Question

The method most commonly used to report defaults and repossessions is

a. provide no basis for the repossessed asset thereby recognizing a loss.
b. record the repossessed merchandise at fair value, recording a gain or loss if appropriate.
c. record the repossessed merchandise at book value, recording no gain or loss.
d. none of these.

Answer 1

The method most commonly used to report defaults and repossessions is to record the repossessed merchandise at fair value, recording a gain or loss if appropriate.

Step-by-step explanation:

The method most commonly used to report defaults and repossessions is b. record the repossessed merchandise at fair value, recording a gain or loss if appropriate.

When a default or repossession occurs, the repossessed merchandise is recorded at its fair value. This means that the asset is reported at the amount it could be sold for in the current market. If the fair value is lower than the book value (the value at which the asset is currently recorded on the books), a loss is recognized. If the fair value is higher, a gain is recognized.

For example, if a company repossesses a car from a customer who defaulted on their loan, they would record the car at its fair value. If the fair value is lower than the amount the car is currently recorded at on the books, a loss would be recognized. If the fair value is higher, a gain would be recognized.