Jeffrey’s Billiards sold a pool table to C. Cobbs on October 31, 2009. The terms of the sale are no money down and payments of $50 per month for 30 months, with the first payment due on November 30, 2009. The table they sold to Cobbs cost Jeffrey’s $800. Jeffrey’s uses an interest rate of 12 percent compounded monthly (1 percent per month).

Required:

1. Prepare the cash flow diagram for this sale.

2. Calculate the amount of revenue Jeffrey’s should record on October 31, 2009.

3. Prepare the entry to record the sale on October 31. Assume that Jeffrey’s records cost of goods sold at the time of the sale (perpetual inventory accounting).

4. Determine how much interest revenue Jeffrey’s will record from October 31, 2009, through December 31, 2009.

5. Determine how much Jeffrey’s 2009 income before taxes increased by this sale.