Problem:
On August 31, 2011, the Silva Company sold merchandise to the Bendix Corporation for $500,000. Terms of the sale called for s down payment of $100,000 and four annual installments of $100,000 due each August 31, beginning August 31, 2012. Each installment also will include interest on the unpaid balance applying 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.
Prepare a table showing the amount of gross profit to be recognized in each of the five years of the installment sale applying the following method Point of delivery revenue recognition.
Prepare journal entries for each of the five years applying point of delivery revenue recognition, Installment sales method and cost recovery method.
Prepare a partial balance sheet as of year-end 2011 and 2012 listing the items related to the installment sale applying each of the three methods listed. (Delivery revenue recognition, Installment sales method and cost recovery method)