Chapter 18 Cost Recovery Method Problem

On January 1, 2015, Janine Company sold real estate that cost $95,114 to ConawayCompany for $120,000. Conaway agreed to pay the purchase over three years by makingthree end-of-year equal payments of $52,557 that include 15% interest. Shortly after thesale, Janine Company learns distressing news about Conaways financial circumstancesand because collection is so uncertain decides to account for the sale using the costrecoverymethod.Instructions1) Applying the cost-recovery method, prepare a schedule showing the amounts ofcash collected, the increase (decrease) in deferred interest revenue, the balance ofthe receivable, the balance of the unrecovered cost, the gross profit realized, andthe interest revenue realized for each of the three years assuming the payments aremade as agreed.2) Prepare the journal entries for the three years.