Reference no: EM132752772

Question - On September 30, 19X7, Harmony Instruments, Inc,. sold for $1,600 a piano costing $1,000. The down payment was $160, and the same amount was to be paid at the end of each succeeding month. Interest at 1% a month was charged on the unpaid balance of the contract, with payments applying first to accrued interest and the balance to principal.

After paying a total of $640, the customer defaulted. The piano was repossessed in February, 19X8. It was estimated that the piano had a value of $560 on a depreciated cost basis. The company uses perpetual inventory accounts and enters the total deferred gross profit at the time of sale.

Required - Prepare the journal entries to record:

(1) The installment sale.

(2) The monthly collections.

(3) The recognition of realized gross profit at the end 19X7.

(4) The repossession in 19X8.