Reference no: EM133906324

Problem

On January 1, Year 1, an entity sold a car a customer at a price of P400, 000 with a production cost of P300, 000. It is the entity's policy to employ installment method to recognize gross profit from installment sales. At the time of sale, the entity received cash amounting to 25% of the selling price and old car with trade-in allowance of P50, 000. The said old car has fair value of P150, 000. The customer issued a 5- year note for the balance to be payable in equal annual installment every December 31 starting Year 1. The note payable is interest bearing with 10% rate due on the remaining balance of the note. The customer was able to pay the first annual installment and corresponding interest due. However, after the payment of the second interest due, the customer defaulted on the second annual installment which resulted to the repossession of the car sold with appraised value of P110, 000. On December 31, Year 2, the repossessed car was resold for P140, 000 after reconditioning cost of P10, 000. Get the instant assignment help. If the collection of the note receivable is reasonably assured, what is the gross profit to be recognized by?