RECORDING SALES WITH DELAYED PAYMENTS. On April 1, 19x6, Goldenrod Distributors sold an electronic air-cleaning system. The terms of the sale were

$10,000 down and $20,000 payable in 18 months. The system cost Goldenrod $14,000 when purchased from the manufacturer.

REQUIRED:

1. Record this sale if Goldenrod uses an 8% interest rate compounded quarterly (2%

per 3-month period).

2. By how much would the selling price change if a 12% interest rate compounded quarterly (3% per 3-month period) were used?

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3. Prepare and complete a table similar to the one below: INTEREST RATES 8% 12% 19x6 Sales revenue Cost of goods sold Gross margin Interest revenue 19x7 Interest revenue Total effect over both years on income before taxes 4. Which interest rate do you think Goldenrod's management would prefer? Why?