Cost Recovery Method
Response to the following problem:
After a two-year search for a buyer, Hobson, Inc. sold its idle plant facility to Jackson Company for $700,000 on January 1, 2008. On this date the plant had a depreciated cost on Hobson's books of $500,000. Under the agreement Jackson paid $100,000 cash on January 1, 2008, and signed a $600,000 note bearing interest at 10%. The note was payable in installments of $100,000, $200,000, and $300,000 on January 1, 2009, 2010, and 2011, respectively. The note was secured by a mortgage on the property sold. Hobson appropriately accounted for the sale under the cost recovery method since there was no reasonable basis for estimating the degree of collectibility of the note receivable. Jackson repaid the note with three late installment payments, which were accepted by Hobson, as follows:
Date of Payment Principal Interest
July 1, 2009 $100,000 $90,000
December 31, 2010 200,000 75,000
February 1, 2012 300,000 32,500
Required
Prepare a schedule to record the initial transaction for the sale of the idle plant facility, the application of subsequent cash collections on the note, and the necessary journal entry on the date the transaction is complete.