Problem:
On July 1, 2013, the Foster Company sold inventory to the Slate Corporation for $420,000. Terms of the sale called for a down payment of $105,000 and three annual installments of $105,000 due on each July 1, beginning July 1, 2014. Each installment also will include interest on the unpaid balance applying an appropriate interest rate. The inventory cost Foster $168,000. The company uses the perpetual inventory system.
Required:
Question 1: Compute the amount of gross profit to be recognized from the installment sale in 2013, 2014, 2015, and 2016 using point of delivery revenue recognition.
Question 2: Compute the amount of gross profit to be recognized from the installment sale in 2013, 2014, 2015, and 2016, applying the installment sales method.
Question 3: Compute the amount of gross profit to be recognized from the installment sale in 2013, 2014, 2015, and 2016, applying the cost recovery method.
Note: Please show how to work it out.