Installment sales and cost recovery methods
Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2016 and 2017 is as follows:
|
|
2016
|
2017
|
|
Sales
|
$300,000
|
$400,000
|
|
Cost of sales
|
180,000
|
280,000
|
|
Customer collections on:
|
|
|
|
2016 sales
|
120,000
|
100,000
|
|
2017 sales
|
-
|
150,000
|
Required:
1. Calculate the amount of gross profit that would be recognized each year from installment sales.
2. Prepare all necessary journal entries for each year.
3. Repeat requirements 1 and 2 assuming that Ajax uses the cost recovery method to account for its installment sales.