Ajax Company appropriately accounts for certain sales using the installment sales method. The perpetual inventory system is used. Information related to installment sales for 2016 and 2017 is as follows:
2016 2017 Sales $300,000 $400,000
Cost of sales 180,000 280,000
2017 sales - 150,000 2016 sales 120,000 100,000 Customer collections on:
Required:
- Calculate the amount of gross profit that would be recognized each year on installment sales.
- Prepare all necessary journal entries for each year.
- Repeat requirements 1 and 2 assuming that Ajax uses the cost recovery method to account for its installment sales.