Question

On July 1, 2014, the Miller Company held an inventory clearance sale to rid itself of a sizeable amount of rapidly obsolescing inventory. To ensure the success of the sale, Miller offered generous credit terms: customers—with no minimum credit score required—could purchase up to $5,000 worth of Miller’s products, paying 25% down with the balance due in three equal annual installments. Interest at a market rate of 10% of the unpaid balance was to be remitted with each installment. Miller was quite pleased with the event as the company sold inventory costing $300,000 for $500,000. Assume that installment payments occur on July 1 each year and the following principal amounts are collected after the initial down payment: 2015, $125,000; 2016, $100,000; 2017, $75,000. Due to the generally poor credit scores of the purchasers of this merchandise, Miller believes it appropriate to not recognize revenue at the time of sale.

Required:
1. Prepare Miller’s journal entries each year if Miller adopts the installment sales accounting method under U.S. GAAP. (Ignore any presumed interest collections.)
2. Prepare Miller’s journal entries each year if Miller adopts the cost-recovery accounting method under IFRS. (Ignore any presumed interest collections.)
3. Prepare Miller’s journal entry under each method at December 31, 2017, if the company believes it will not collect any more of these installment receivables.



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  • CreatedSeptember 10, 2014
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