On August 31, 2018, the Silva Company sold merchandise to the Bendix Corporation for $500,000. Terms of

Question:

On August 31, 2018, the Silva Company sold merchandise to the Bendix Corporation for $500,000. Terms of the sale called for a down payment of $100,000 and four annual installments of $100,000 due on each August 31, beginning August 31, 2019. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The book value of the merchandise on Silva's books on the date of sale was $300,000. The perpetual inventory system is used. The company's fiscal year-end is December 31.

Required:

1. Prepare a table showing the amount of gross profit to be recognized in each of the five years of the installment sale applying each of the following methods:

a. Point of delivery revenue recognition

b. Installment sales method

c. Cost recovery method

2. Prepare journal entries for each of the five years applying the three revenue recognition methods listed in requirement 1. Ignore interest charges.

3. Prepare a partial balance sheet as of the end of 2018 and 2019 listing the items related to the installment sale applying each of the three methods listed in requirement 1.

Balance Sheet
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