On August 31, 2018, the Silva Company sold merchandise to the Bendix Corporation for $500,000. Terms of thesale 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. Theperpetual 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 recognitionb. Installment sales methodc. Cost recovery method2. Prepare journal entries for each of the five years applying the three revenue recognition methods listed inrequirement 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 saleapplying each of the three methods listed in requirement 1.
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
requirement 1. Ignore interest charges.
3. Prepare a partial
applying each of the three methods listed in requirement 1.
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