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 thenext 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 andsold jet skis with a total price of $630,000 that cost Lake $315,000. Lake collected $210,000 in 2020, $210,000 in 2021, and $210,000 in 2022 associated with those sales. In 2021, Lake sold jet skis with a total price of$1,380,000 that cost Lake $828,000. Lake collected $460,000 in 2021, $260,000 in 2022, and $260,000 in 2023 associated with those sales. In 2023, Lake also repossessed $400,000 of jet skis that were sold in2021. Those jet skis had a fair value of $150,000 at the time they were repossessed.In 2020, Lake would recognize realized gross profit of:Multiple ChoiceO$0.$105,000.$315,000.$210,000.

The cost recovery method is used by the company on the installment sales in which the primary focus…

Answered: In 2020, Lake would recognize realized…

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In 2020, Lake would recognize realized gross profit of:

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Chapter1: Financial Statements And Business Decisions

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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 $630,000 that cost Lake $315,000. Lake collected $210,000 in 2020, $210,000 in 2021, and $210,000 in 2022 associated with those sales. In 2021, Lake sold jet skis with a total price of
$1,380,000 that cost Lake $828,000. Lake collected $460,000 in 2021, $260,000 in 2022, and $260,000 in 2023 associated with those sales. In 2023, Lake also repossessed $400,000 of jet skis that were sold in
2021. Those jet skis had a fair value of $150,000 at the time they were repossessed.
In 2020, Lake would recognize realized gross profit of:
Multiple Choice
O
$0.
$105,000.
$315,000.
$210,000.

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