Return to question 12 10 points On August 31, 2016, the Silva Company sold merchandise to the Bendix Corporation for $500,000. Terms of the sale called for a down payment of $100,000 and four annual installments of $100,000 due on each August 31, beginning August 31, 2017. Each installment also will include interest on the unpaid balance applying an 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 Required: 1. Complete the table below by entering the amount of gross profit to be recognized in cach of the five years of the installment sale applying each of the following methods: a. Point of delivery revenue recognition. b. Installment sales method c. Cost recovery method. Answer is complete and correct. 8/31/16 8/31/17 B/31/18 8/31/19 8/31/20 $ $ 100,000 $100,000 $100,000 $100,000 $100,000 $ a. Cash collections Gross profit recognized Point of delivery method Installment sales method Cost recovery method $ 200,000 $ 0$ 0$ $ 0 b. $ 40,000 $ 40,000 $ 40,000 $ 40,000 $ 40,000 IS 0$ 0$ 0 0 $ 100,000 $100,000 C. 2. Prepare journal entries for each of the five years applying for the three revenue recognition methods. Ignore interest charges. Return to question 12 Answer is complete but not entirely correct. Point of Delivery Debit Credit Installment Sales Debit Credit Cost Recovery Debit Credit 10 points General Journal To record sale on 8/31/16 Installment receivable Sales revenue 500,000 500,000 500,000 500,000 500,000 500,000 X 300,000 300,000 X 300,000 X Cost of goods sold Inventory 300,000 300,000 X 300,000 500,000 500,000 500.000 To record sale on 8/31/16: Sales revenue Cost of goods sold Deferred gross prolit & x 300,000 200,000 X 300,000 200,000 300,000 200,000 To record cash collections (Entry made each Aug. 31) Cash 100,000 Installment receivable 100,000 100.000 100,000 100,000 100,000 To record gross profit. (Entry made each Aug. 31) Deferred gross profit 200,000 Realized gross profit 40,000 0 200,000 40,000 0 To record gross profit (Entry made 8/31/19 & 8/31/20 Deferred gross profit 0 Realized gross profit 100.000 0 0 100,000 12 10 points 3. Prepare a partial balance sheet as of the end of 2016 and 2017 listing the items related to the installment sale applying each of the above three methods. Answer is complete but not entirely correct. Point of Cost Delivery Installment Sales Recovery Balance Sheet (Partial) December 31, 2016 Assets Accounts receivable Less: Deferred gross profit Installment receivables, net X $ 400,000 $ 0 $ 400,000 400,000 $ 400,000 160,000 200,000 240,000 $ 200,000 December 31, 2017 Assets Accounts receivable Less: Deferred gross profit Installment receivables, net X $ 300,000 $ 0 $ 300,000 300,000 $ 300,000 120,000 200,000 180,000 $ 100,000