A is corrent. Under the cost recovery method no profit of any type is recognized until cumulative cash receipts exceed the cost of the asset sold. Under the installment method, gross profit is deferred at the time of sale and is recognized by applying the gross profit rate to subsequent cash collections. Both methods require the collection of cash before income is recognized.
B is incorrect. Under the cost recovery method no profit of any type is recognized until cumulative cash receipts exceed the cost of the asset sold. Under the installment method, gross profit is deferred at the time of sale and is recognized by applying the gross profit rate to subsequent cash collections. Both methods require the collection of cash before income is recognized.
C is incorrect. Under the cost recovery method no profit of any type is recognized until cumulative cash receipts exceed the cost of the asset sold. Under the installment method, gross profit is deferred at the time of sale and is recognized by applying the gross profit rate to subsequent cash collections. Both methods require the collection of cash before income is recognized.
D is incorrect. Under the cost recovery method no profit of any type is recognized until cumulative cash receipts exceed the cost of the asset sold. Under the installment method, gross profit is deferred at the time of sale and is recognized by applying the gross profit rate to subsequent cash collections. Both methods require the collection of cash before income is recognized.
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