On August 1, 2008, Flintstone Company sold inventory to Rubble Company for \($400,000\). This inventory’s original cost was \($100,000\). The sales contract stipulates that Rubble make a 10%
down payment followed by four annual installments on each August 1, beginning August 1, 2009. Flintstone employs a perpetual inventory system under which inventory is decreased by the cost of merchandise sold at time of sale.
Required:
1. Prepare the necessary journal entries for 2008 and 2009 using point-of-sale revenue recognition.
2. Repeat requirement 1 using the installment sales method.
3. Repeat requirement 1 using the cost recovery method.
4. Typically, interest charges are also included in financing arrangements like this one between Flintstone and Rubble. How would the consideration of interest impact your answer to requirement 1?