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 cost recovery method to recognize revenue on these installment sales. 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 $1,290,000 that cost Lake $774,000. Lake collected $430,000 in 2021, $240,000 in 2022, and $240,000 in 2023 associated with those sales. In 2023, Lake also repossessed $380,000 of jet skis that were sold in 2021. Those jet skis had a fair value of $142,500 at the time they were repossessed.In its December 31, 2021, balance sheet, Lake would report:

Answer 1

Answer:

$650,000

Explanation:

Calculation to determine what Lake would report in its December 31, 2021, balance sheet

First step is to calculate Net installment Receiveble for 2020 sales

2020 sales Installment Receiveble 300,000

($900,000-$300,000 2018 Collection -$300,000 2021 Collection)

Less Deferred gross profit $150,000

(450,000-$150,000 2020 collection-$150,000 2021 collection )

Net installment Receiveble for 2020 sales $150,000

Second step is to determine Net installment Receiveble for 2021 sales

2021 sales Installment Receiveble $860,000

($1,290,000-$430,000

Less Deferred gross profit $360,000

($600,000-$240,000)

Net installment Receiveble for 2021 sales $500,000

Now let determine what Lake would report in its December 31, 2021, balance sheet

December 31, 2021, balance sheet=$150,000+$500,000

December 31, 2021, balance sheet=$650,000

Therefore In its December 31, 2021, balance sheet, Lake would report: $650,000