On August 31, 2016, 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, 2017. 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. Complete the table below by entering 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. Answer is complete and correct. 8/31/16 Cash collections $ 100,000 8/31/17 $ 100,000 8/31/18 $ 100,000 8/31/19 $100,000 8/31/20 $ 100,000 Gross profit recognized Point of delivery a. $ 200,000 0 $ 0 0 method Installment sales b. $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 method C. Cost recovery method 0 $ 0 $ 100,000 $ 100,000 2. Prepare journal entries for each of the five years applying for the three revenue recognition methods. Ignore interest charges. Answer is complete but not entirely correct. Point of Delivery Installment Sales Cost Recovery General Journal Debit Credit Debit Credit Debit Credit To record sale on 8/31/16: Installment receivable Sales revenue Cost of goods sold Inventory To record sale on 8/31/16: Sales revenue Cost of goods sold Deferred gross profit 330 500,000 500,000 500,000x 500,000 500,000 500,000 300,000 300,000 300,000 300,000 300,000 300,000 500,000 500,000 500.000 300,000 200,000 300,000 200,000 300,000 200,000 To record cash collections (Entry made each Aug. 31) Cash. 100,000 Installment receivable To record gross profit. (Entry made each Aug. 31) Deferred aross profit 00 100,000 100,000 100,000 100,000 100,000 40.000 00 3. Prepare a partial balance sheet as of the end of 2016 and 2017 listing the items related to the installment sale applying each of the above three methods. Answer is complete but not entirely correct. Balance Sheet (Partial) Point of Delivery Installment Sales Cost Recovery December 31, 2016 Assets Accounts receivable Less: Deferred gross profit $ 400,000 0 160,000 $ 400,000 200,000 Installment receivables, net December 31, 2017 Assets Accounts receivable Less: Deferred gross profit Installment receivables, net. $ 400,000 $ 400,000 $ 300,000 ( 0 $ 300,000 $ 240,000 $ 200,000 $ 300,000 120,000 $ 180,000 9,000 3,000 $ 100,000