On 1/1/2015, PHIL Company sold merchandise with a cost of $60,000 for $100,000 with 10% down payment and the remaining 90% on the installment basis over 3 years. The annual payment will be made at the end of each year starting from 12/31/2015. PHIL repossessed the merchandise from the customer due to default payments on 1/1/2017 when the fair value of the repossessed merchandise was $25,000. PHIL used the effective interest method and 8% interest rate for the installment sales.
Insructions:
1) Compute the payment per year for the installment sales,
2) Prepare any necessary journal entries for the following transactions using the installment sales method.
a. For the sale and the adjustment to defer the gross profit in 2015.
b. For the payments received in 2015 (record the annual total).
c. For the recognition of the gross profit realized in 2015.
d. For the payments received in 2016 (record the annual total).
e. For the recognition of the gross profit realized 2016.
f. For the repossessed merchandise on 1/1/2017.