Question

Lake Power Sports sells jet skis and other powered recreational equipment. Customers pay one-third of the sales price of a jet ski when they initially purchase the ski, and then pay another one-third each year for the next two years. Because Lake has little information about the ability to collect these receivables, it uses the installment sales method for revenue recognition.

In 2020, Lake began operations and sold jet skis with a total price of $900,000 that cost Lake $450,000. Lake collected $300,000 in 2020, $300,000 in 2021, and $300,000 in 2022 associated with those sales. In 2021, Lake sold jet skis with a total price of $1,500,000 that cost Lake $900,000. Lake collected $500,000 in 2021, $400,000 in 2022, and $400,000 in 2023 associated with those sales. In 2023, Lake also repossessed $200,000 of jet skis that were sold in 2021. Those jet skis had a fair value of $75,000 at the time they were repossessed.
1. In 2023, Lake would record a loss on repossession of __________.
Multiple Choice
A) $45,000.
B) $200,000.
C) $120,000.
D) $80,000.

Answer 1

$200000 ( b )

Step-by-step explanation:

Lake power sport began operations and sold jets worth = $900000

and it cost lake $450000

Lake collected $300000 in 2020

lake also collected $300000 in 2021

lake collected $300000 in 2022

total cost of $450000 was recovered from 2020 and 2021 = $600000

that means in 2021 lake made a gross profit of $150000

Lake power began operations again 2021 and sold jets worth = $1500000

that cost = $900000

lake collected $500000 in 2021

lake collected $400000 in 2022

lake collected $400000 in 2023

lake repossessed ( $200000 ) in 2023

total cost of $900000 was recovered from 2021 and 2022 payments = ($900000 )

what ever was received in 2023 was gross profit = $400000

in 2023 lake would record a loss on repossession made of = $200000 ( gross profit - repossession )