(Using the instalment method, LO 2) Red Pheasant Inc. (Red Pheasant) sells a range of consumer products. The company buys half-hour blocks of time on local television stations to promote the products to potential buyers. For example, recently Red Pheasant has been promoting a sophisticated home gym. Customers can purchase the home gym for 36 monthly payments of $75. The cost of a home gym to Red Pheasant is $1,400. Red Pheasant used the instalment method for recognizing revenue.

Required:

a. Why do you think that Red Pheasant uses the instalment method to recognize revenue on the sale of its home gym?

b. What journal entries would Red Pheasant record when it receives a payment from a customer?