Reliable Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured, and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise is in condition to be re-sold. Therefore, Reliable uses the cost recovery method. Merchandise costing $29,750 was sold for $57,000 in 2020. Collections on this sale were $19,200 in 2020, $14,300 in 2021, and $23,500 in 2022. In 2021, Reliable would recognize gross profit of:

$3,750

Explanation:

The computation of reliable gross profit is given below :-

=  Sales of 2020 year + sale of  2021 years - Cost of Merchandise

= $19,200 + $14,300 - $29,750

= $33,500 - $29,750

= $3,750

Since we have to compute the gross profit of 2021 only so we did not take the collection of year 2022

So, the reliability of gross profit is $3,750.

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