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Compute the amount of gross profit to be recognized

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Question - On July 1, 2013, the Foster Company sold inventory to the Slate Corporation for $300,000. Terms of the sale called for a down payment of $75,000 and three annual installments of $75,000 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 $120,000. The company uses the perpetual inventory system.

Required:

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. Ignore interest charges.

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. Ignore interest charges.

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. Ignore interest charges.

Reference no: EM131913949

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