Chapter 4
Installment Sales
Installment sales problems have appeared very often in the CPA exam. Therefore, candidates
should be familiar with the accounting techniques applicable to this topic.
When a sale is made on the installment basis, the buyer usually makes a down payment and
promises to pay the balance in regular installments over a specified period of time. Profit on
installment sales is recognized only when earned. Although there are several theoretical points
at which the profit can be assumed to be earned, for CPA examinations purposes, the choice is
generally limited to the installment method.
Installment Method
Under this method, income is recognized only when collections are made. Problems requiring
the use of the installment method of recognizing income have appeared quite regularly in the
CPA exam. The following are the typical problems often encountered in the CPA exam:
1.
2.
3.
4.
Computation of Gross Profit Rate for each year of sales.
Computation of Realized Gross Profit for each year of sales.
Computation of Deferred Gross Account balance at the end of year.
Computation of Gain or Loss on repossessions.
Computation of Gross Profit Rate
To compute the realized gross profit in proportion to the collections made, it is necessary to
determine the gross profit rate for each year’s operations. The following are the formulas in
computing gross profit rate:
Current year sales: Gross Profit Rate =
Gross Profit
Installment Sales
Prior year sales:
Gross Profit Rate =
Deferred Gross Profit (Beg.) – Prior Year Sales
Installment Accounts Receivable (Beg.) – Prior Year Sales
Computation of Realized Gross Profit
Once the gross profit rates are known, it is possible to compute the realized gross profit based
on cash collections. The formula to be used is:
Realized Gross Profit =
Collections (excluding interest) x Gross Profit Rate (based on sale)
Missing Factors. In as much as the realized gross profit under the installment method depends
upon cash collections of receivables, it is important that the amounts collected must be known.
However, in some problems, the collections are not specifically stated. Such collections must be
reconstructed from related information available from the data given. The candidate should
remember the following format in computing the collections:
Installment accounts receivable – beginning
Installment accounts receivable – end
Total credits
Credit for repossessions (unpaid balance)
Credit for installment A/C written off
Credit representing collections
Computation of Deferred Gross Profit, End
Current
Year
Sales
xx
(xx)
xx
(xx)
(xx)
xx
Prior
Year
Sales
xx
(xx)
xx
(xx)
(xx)
xx
To compute the balance of Deferred Gross profit at the end of the year, the following formula
may be used:
Installment Account Receivable – End x GPR = Deferred Gross Profit – End
Or
Deferred Gross Profit – before adjustment
Less: Realized gross profit
Deferred Gross Profit - End
xx
xx
xx
Computation of Gain or Loss on Repossession
If a customer does not make an installment payment at the specified time, it is necessary to
repossess the merchandise in order for the seller to minimize his loss.
The gain or loss on repossession is computed as follows:
Fair value of repossessed merchandise
Less: Unrecovered cost Unpaid balance
Less: deferred gross profit (unpaid balance x GP rate)
Gain (loss) on repossession
xx
xx
xx
The fair value of repossessed merchandise at the time of repossession should be before
reconditioning cost and before adding a normal gross profit from sale of repossessed
merchandise.
xx
xx
Trade In
This type of installment sales used by car dealers, whereby an old car is received as down
payment from the buyer for sale of the new car. Usually the old car traded-in is overvalued to
induce the trade-in. for problem solving purposes the overvaluation is computed using a
formula below:
Trade-in value allowed on the old car
Pxx
Less: Actual value
Estimated selling price
Pxx
Less: Normal gross profit from the sale of used car
Pxx
Reconditioning costs
xx
xx
xx
Overallowance on the old car
Pxx
The overallowance is treated as a deduction from the selling price of the new car. When there
is overallowance on the old car traded-in, the gross profit rate is computed as follows:
Gross profit ÷ Net Sales (net of overallowance)
The realized gross profit is also computed as follows:
Collections (cash + actual value of old car) x GPR
PROBLEMS
1. Oro Company began operations on January 1, 2012 and appropriately uses the
installment sales method of accounting. The following data are available for 2012 and
2013:
Installment sales
Gross profit on sales
Cash collections from:
2012 sales
2013 sales
2012
2013
P1,500,000 P1,800,000
30%
40%
500,000
-
600,000
700,000
The realized gross profit for 2013 is:
a.
b.
c.
d.
P720,000
520,000
460,000
280,000
2. Roco Corp., which began business on January 1, 2013, appropriately uses the
installment sales method of accounting for income tax reporting purposes. The
following data are available for 2013:
Installment accounts receivable, 12/31/2013
Installment sales for 2013
Gross profit on sales
P200,000
350,000
40%
Under the installment method, what would be Roco’s deferred gross profit at December
31, 2013?
a.
b.
c.
d.
P20,000
90,000
80,000
60,000
3. Gray Co., which began operations on January 1, 2013, appropriately uses the installment
method of accounting. The following information pertains to Gray operations for the
2013:
Installment sales
Regular sales
Cost of installment sales
P500,000
300,000
250,000
Cost of regular sales
General and administrative expenses
Collections on installment sales
150,000
50,000
100,000
In its December 31, 2013 statement of financial position, what amount should Gray
report as deferred gross profit?
a.
b.
c.
d.
P250,000
200,000
160,000
75,000
4. Filstate Co. is a real estate developer that began operations on January 2, 2013. Filstate
appropriately uses the installment method of revenue recognition. Filstate sales are
made on the basis of a 10% downpayment, with the balance payable over 30 years.
Filstate gross profit percentage is 40%. Relevant information for Filstate first year of
operations is as follows:
Sales
P16,000,000
Cash collections
2,020,000
The realized gross profit and deferred gross profit at December 31, 2013 are:
a.
b.
c.
d.
P808,000 and P5,592,000
5,040,000 and 808,000
5,600,000 and 808,000
808,000 and 6,400,000
5. Long Co., which began operations on January 1, 2013, appropriately uses the installment
method of accounting. The following information pertains to Long’s operations for the
year 2013:
Installment sales
Regular sales
Cost of installment sales
Cost of regular sales
General and administrative expenses
Collections on installment sales
What is the total comprehensive income on December 31, 2013?
a.
b.
c.
d.
P400,000
200,000
300,000
100,000
P1,000,000
600,000
500,000
300,000
100,000
200,0000
6. Kiko Co. began operations on January 1, 2013 and appropriately uses the installment
method of accounting. The following information pertains to Kiko’s operations for 2013:
Installment sales
Cost of installment sales
General and administrative expenses
Collections on installment sales
P800,000
480,000
80,000
300,000
The balance in the deferred gross profit account at December 31, 2013 should be:
a.
b.
c.
d.
P120,000
150,000
200,000
320,000
7. Tayag Corp., which began operations in 2013, accounts for revenues using the
installment method. Tayag’s sales and collections for the year were P60,000 and
P35,000, respectively. Uncollectible accounts receivable of P5,000 were written off
during 2013. Tayag’s gross profit rate is 30%. On December 31, 2013, what amount
should Tayag report as deferred revenue?
a.
b.
c.
d.
P10,500
9,000
7,500
6,000
8. Laya Corp., which began operations on January 2, 2013, appropriately uses the
installment sales method of accounting. The following information is available for 2013:
Installment accounts receivable, December 31, 2013
Deferred gross profit, December 31, 2013
(before recognition of realized gross profit for 2013)
Gross profit on sales
P800,000
560,000
40%
For the year ended December 31, 2013, realized gross profit on sales should be:
a.
b.
c.
d.
P320,000
340,000
320,000
240,000
9. Dulce Co., which began operations on January 1, 2012, appropriately uses the
installment method of accounting to record revenues. The following information is
available for the years ended December 31, 2012 and 2013:
Installment sales
Gross profit realized on sales made in:
2012
2013
Gross profit percentages
2012
2013
P1,000,000 P1,800,000
150,000
30%
90,000
200,000
40%
What amount of installment accounts receivable should Dulce report in its December
31, 2013, statement of financial position?
a.
b.
c.
d.
P1,225,000
1,300,000
1,700,000
1,775,000
10. On January 2, 2012, Black Co. sold a used machine to White, Inc. for P900,000, resulting
in a gain of P270,000. On that date, White paid P150,000 cash and signed a P750,000
note bearing interest at 10%. The note was payable in three annual installments of
P250,000 beginning January 2, 2013. Black appropriately accounted for the sale under
the installment method. White made a timely payment of the first installment on
January 2, 2013, of P325,000, which included accrued interest of P75,000. What amount
of deferred gross profit should Black report at December 31, 2013?
a.
b.
c.
d.
P150,000
172,500
180,000
225,000
11. White Plains, Inc. sells residential lots on installment basis. The following data was taken
from the accounting records of the company as at December 31, 2013:
Installment accounts receivable, January 1
Installment accounts receivable, December 31
Deferred gross profit, January 1
Installment sales
P755,000
840,000
339,750
950,000
Complete (1) the realized gross profit on December 31, 2013 and (2) the balance of the
Deferred Gross Profit account on December 31, 2013.
a.
b.
c.
d.
(1) P389,250; and (2) P378,000
(1) 427,500; and (2) 389,250
(1) 330,750; and (2) 427,000
(1) 378,000; and (2) 339,750
12. In August, 2012, Mega World Inc. sold condominium units costing P1,440,000 for
P2,400,000 receiving P350,000 cash and a mortgage note for the balance payable in
monthly installments. Installment received in 2010 reduced the principal of the note to
a balance of P2,000,000. The buyer defaulted on the note at the beginning of 2013, and
the property was repossessed. The property had a fair market value of P1,150,000 at
the time of repossession.
Compute the gain (loss) on repossession if (1) profit is recognized at the point of sale
and (2) gross profit is recognized in proportion to collections.
a.
b.
c.
d.
(1) P(850,000); and (2) P(50,000)
(1) (850,000); and (2) (450,000)
(1) 850,000; and (2) (450,000)
(1) (50,000); and (2) 50,000
13. Sarao Motors sells locally manufactured jeeps on installment basis. Data presented
below related to the company’s operations for the last three calendar years:
cost of installment sales
Gross profit rates on sales
Installment accounts receivable, 12/31:
From 2013 sales
From 2012 sales
From 2011 sales
2013
2012
2011
P8,765,625 P7,700,000 P4,950,000
32%
30%
38%
9,728,125
3,025,000
8,387,500
1,512,500
4,812,500
On December 31, 2013 how much is the (1) total realized gross profit and (2) deferred
gross profit?
a.
b.
c.
d.
(1) P3,044,250; and (2) P4,020,500
(1) 3,044,250; and (2) 4,125,000
(1) 3,733,750; and (2) 4,020,500
(1) 6,993,250; and (2) 4,020,500
14. Polo Company appropriately uses the installment sales method of recognizing revenue.
On December 31, 2013, the accounting records show unadjusted balances of the
following:
Installment accounts receivable – 2011
Installment accounts receivable – 2012
Installment accounts receivable – 2013
Deferred gross profit – 2011
P12,000
40,000
130,000
10,500
Deferred gross profit – 2012
Deferred gross profit – 2013
Gross profit rates:
2011
2012
2013
28,900
96,000
35%
34%
32%
For the year ended December 31, 2013, compute (1) total realized gross profit and (2)
the total cash collections in 2013:
a.
b.
c.
d.
(1) P182,000; and (2) P135,400
(1) 76,000; and (2) 233,000
(1) 158,000; and (2) 368,400
(1) 106,000; and (2) 97,600
15. Bally Company, which began operations on January 2, 2013 appropriately, uses the
installment method of revenue recognition. The following data pertains to the
company’s operations for the 2013:
Installment sales
Cost of installment sales
Collections on installment sales
Installment accounts receivable written off
P1,000,000
500,000
150,000
50,000
What is the balance of Deferred Gross Profit account – 2013 on December 31, 2013?
a.
b.
c.
d.
P500,000
150,000
400,000
320,000
16. Nike Company, which began operations on January 5, 2012, appropriately uses the
installment method of revenue recognition. The following information pertains to the
company’s operations for 2012 and 2013:
Sales
Collections from:
2012 sales
2013 sales
Accounts written off from
2012 sales
2013 sales
Gross profit rates
2012
2013
P300,000 P450,000
100,000
-0-
50,000
150,000
25,000
-030%
75,000
150,000
40%
What amount should Nike Company report as deferred gross profit in its December 31,
2013 statement of financial position?
a.
b.
c.
d.
P75,000
80,000
112,000
125,000
17. The following accounts appeared in the accounting records of Adidas Sales Company as
of December 31, 2013:
Installment accounts receivable – 2012
Installment accounts receivable – 2013
Inventory, December 31, 2012
Purchases
P15,000
200,000
70,000
555,000
Repossessions
Installment sales
Regular sales
Deferred gross profit - 2012
P3,000
425,000
385,000
54,000
Additional information:
Installment accounts receivable – 2012, January 1, 2013
Inventory of new and repossessed merchandise, December 31, 2013
Gross profit rate on regular sales
P120,00
95,000
30%
Repossession was made during the year, 2013. It was a 2012 sale and the corresponding
uncollected balance at the time of repossession was P7,200.
Compute (1) the total realized gross profit for 2013 and the (2) loss on repossession:
a.
b.
c.
d.
(1) P129,510; and (2) P960
(1) 129,510; and (2) 1,464
(1) 245,000; and (2) 960
(1) 85,500; and (2) 1,464
18. Mango Company, which sells appliances started operations on January 10,2013
operates on a calendar year basis, and uses the installment method of revenue
recognition. The following data were taken from the 2010 and 2011 accounting records:
2012
2013
Installment sales
P480,000
P620,000
Gross profit rates based on cost
25%
20%
Cash collection on 2012 sales
130,000
240,000
Cash collection on 2013 sales
160,000
What is the amount of realized gross profit to be recognized on December 31,2013?
a. P124,500
b. P100,000
c. P92,000
d. P74,667
19. Lacoste Corporation has been using the cash method of revenue recognition. All sales
are made on account with notes receivable given by the customers. The income
statement for 2013 presented the following data:
Revenues – collection on principal
P32,000
Revenues – interes
3,600
Cost of goods purchases (includes
45,200
inventory of goods on hand P2,000)
The balances due on the notes on December 31 were as follows:
Notes receivable
P62,000
Unearned interest income
7,167
Assuming the use of the installment method of revenue recognition, what is the realized
gross profit on December 31,2013?
a. P16,080
b. P25,586
c. P18,060
d. P43,633
20. Sta. Lucia Realty Corporation sells residential subdivision lots on installment basis. The
following data were taken from the company’s accounting records as of December
31,2013. The company uses a uniform gross profit rate:
Installment accounts receivable:
January 1,2013
P1,510,000
December 31,2013
1,680,000
Unrealized gross profit – January 1,2013
679,500
Installment sales – 2012
1,180,000
Installment sales - 2013
1,900,000
How much is the gross profit realized during the year 2013?
a. P778,500
b. P679,500
c. P756,500
d. P630,500
21. The following information pertains to a sale of real estate by RR Co. to SS Co. on
December 31,2012:
Carrying amount
P2,000,000
Sales price:
Cash
P300,000
Purchase money mortgage
2,700,000
3,000,000
The mortgage is payable in nine annual installments of P300,000 beginning December
31,2013 plus interest of 10%. The December 31,2013 installment was paid as scheduled,
together with interest of P270,000. RR uses the cost recovery method to account for the
sale. What amount of income should RR recognize in 2013 from the real estate sale and
its financing?
a. P570,000
b. P370,000
c. P270,000
d. P0
22. Action Inc. sold a fitness equipment on installment basis on October 1,2013. The unit
cost to the company was P60,000 but the installment selling price was set at P85,000.
Terms of payment included the acceptance of a used equipment with a trade-in value of
P30,000. Cash of P5,000 was paid in addition to the traded-in equipment with the
balance to be paid in ten monthly installments due at the end of each month
commencing the month of sale.
It would require P1,250 to recondition the used equipment so that it could be resold for
P25,000. A 15% gross profit was usual from sale of used equipment. The realized gross
profit from the 2013 collections amounted to
a. P4,000
b. P34,000
c. P10,000
d. P8,000
23. M & J Corp. which sells goods on installment basis, recognizes at year end gross profit
on collections which is consisted of cost and gross profit. It reported the following:
January 1
December 31
Installment receivables
2011
P120,100
0
2012
1,722,300
P337,200
2013
0
2,050,450
Sales and cost of sales for the three years are as follows:
2011
2012
2013
Sales
P1,900,000
P2,610,000
P3,010,0000
Cost of sales
1,235,000
1,425,000
1,896,300
In 2013 the company repossessed merchandise with resale value of P8,500 from
customers who defaulted in payments. The sales were made in 2012 for P27,000 on
which P16,000 was collected prior to default. As collections are made, the company
debits cash and credits installment receivable. For default and repossessions, the
company debits installment receivable. The amount of adjustment on the inventory of
repossessed merchandise to the extent of the unrealized gross profit was
a. Zero
b. A decrease of P6,240
c. A decrease of P2,500
d. A decrease of P3,740
24. On October 2013, Haybol Realty Co. sold to Mae Balay a property for P500,000 which is
carried in its books for P250,000. The company received P100,000 on the date of the
sale and a mortgage note for P400,000 payable in twenty (20) semiannual installments
of P20,000 plus interest on the unpaid principal at 16% per annum.
The realized profit to be recognized by Haybol Realty Corp. in 2013 if gross profit is
recognized periodically in proportion to collections would be
a. P50,000
b. P100,000
c. P60,000
d. P250,000
25. Quincy Enterprises uses the installment method of accounting and has the following
data at year-end:
Gross margin on cost
66 2/3%
Unrealized gross profit
P192,000
Cash collection including down payments
360,000
What was the total amount of sale on installment basis?
a. P480,000
b. P648,000
c. P552,000
d. P840,000
26. The Brownout, Inc. began operating at the start of the calendar year 2013 uses the
installment method of accounting:
Installment sales
P400,000
Gross margin based on cost
66 2/3%
Inventory, Dec. 31,2013
80,000
General and administrative expenses
40,000
Accounts receivable, Dec. 31,2013
320,000
The balance of the deferred gross profit account at December 31,2013 should be:
a. P192,000
b. P96,000
c. P128,000
d. P80,000
27. Tear Drops Corp. started operations on 1 January 2012 selling home appliances and
furniture on installment basis. For 2012 and 2013 the following represented operational
details.
In thousand Pesos
2012
2013
Installment sales
P1,200
P1,500
Cost of installment sales
720
1,050
Collections on installment sales
2012
630
450
2013
0
900
On 7 January 2013, an installment sale account in 2010 defaulted and the merchandise
with a market value of P15,000 was repossessed. The related installment receivable
balance as of date of default and repossession was P24,000.
The balance of the unrealized gross profit as of the end of 2013 wa
a. P218,400
b. P192,000
c. P360,000
d. P275,000
28. Four J Co. sold goods on installment. For the year just ended the following were
reported:
Installment sales
P3,000,000
Cost of installment sales
2,025,000
Collections on installment sales
1,800,000
Repossessed accounts
200,000
Fair market value of repossessions
120,000
The gain(loss) on repossession is:
a. (P15,000)
b. P15,000
c. (P80,000)
d. P5,000
29. A refrigerator was sold to Fernandina Castro for P16,000, which included a 40% markup
on selling price. She made a down payment of 20%, payment of four of the remaining 16
equal payment and defaulted on further payments. The refrigerator was repossessed, at
which time the fair value was determined to be P6,800.
The repossession resulted to the following (loss) gain:
a. P(1,040)
b. P1,040
c. P4,056
d. P2,960
30. The Company uses the installment method of accounting to recognize income, Pertinent
data are as follows:
2011
2012
2013
Installment sales
P300,000
P375,000
P360,000
Cost of sales
225,000
285,000
252,000
Balances of Deferred Gross Profit at Year end
2011
P52,500
P15,000
P2012
54,000
9,000
2012
72,000
The total balance of the Installment Accounts Receivable on December 31,2013 is:
a. P270,000
b. P277,500
c. P279,500
d. P300,000
31. In its first year of operations, Guijo Company’s sales were as follows:
Sales basis
Mark-up on cost
Sales
Cash
25%
P250,000
Charge
33-1/3%
400,000
installment
50%
600,000
The cost of goods sold for the year was P900,000.
No. 31 – Continued
If collections on installment sales during the year amounted to P240,000, how much was
the total gross profit realized at the end of the year?
a. P50,000
b. P60,000
c. P80,000
d. P230,000
32. A sale on installment basis was made in 2013 for P8,000 at a gross profit of P2,800. At
the end of 2013, when the installment account receivable had a balance of P3,500, it
was ascertained that the customer would be unable to make further payments. The
merchandise was then repossessed and was appraised at a value of P1,500. The loss on
repossession was:
a. P3,500
b. P2,000
c. P775
d. P1,775
33. On January 1,2012 Blim Company commenced its sales of gas stoves. Separate accounts
were set up for installment and cash sales, but perpetual inventory record was not kept.
On the installment sales of a down payment of 1/3 was required, with the balance
payable in 18 equal monthly installments.
The transactions of the Blim Company are as follows:
2012
2013
Sales:
New gas stoves for cash
P27,000
P37,000
New gas stoves on installment
(including the 1/3 cash
235,000
down payment)
Purchases
193,000
Physical inventories at
December 31:
New gas stoves at cost
45,500
Cash collections on installment contracts, exclusive of down payments:
2012 sales
54,000
77,000
2013 sales
70,000
No. 33 – Continued
330,000
215,000
60,000
The realized gross profit for the year 2013 that would be reported on the income
statement amounted to:
a. P131,530
b. P140,000
c. P123,350
d. P131,500
34. The data below are taken from the records of Jess Appliance Co., which sells appliances
exclusively on the installment basis.
2011
2012
2013
Installment sales
P365,500
P417,800
P610,750
Gross profit
36%
39%
40%
The balance in the Installment Accounts Receivable controlling accounts at the
beginning and end of 2013 were:
2013
From sales made in:
January 1
December 31
2011
P17,400
P2012
205,400
25,800
2013
305,520
There was one repossession recorded during 2013, it related to a 2012 sale. The
repossessed appliance was sold at its fair value of P200, which equaled the uncollected
balance in the customer’s installment accounts receivable.
The total realized gross profit on prior year sales on December 31, 2013 and the gain
(loss) from the sale of the repossesses appliance are:
a. P76,230 and P(78)
b. P76,230 and P78
c. P69,966 and P78
d. P75,230 and P78
35. Mr. Matias Manuel is a dealer in appliance who sells on an installment basis. A
refrigerator which originally cost P924 was sold by him for P1,650 to Jose Santos who
made a down payment of P220, but defaulted in subsequent payments.
No. 35 – Continued
Mr. Manuel repossessed the refrigerator at an appraised value of P460. To improve its
salability, he expended P60 for reconditioning. He was able to sell the refrigerator to
Pedro Reyes for P1,000 at a down payment of the first installment of P250.
The realized gross profit from the first installment sale (to Jose Santos) and from the
second installment sale (to Pedro Reyes) are:
a. P96.80 and P100
b. P26.40 and P120
c. P96.80 and P120
d. P26.40 and P100
36. The Bengal Furniture Company appropriately used the installment sales method in
accounting for the following installment sale. During 2013 Bengal sold furniture to an
individual of P3,000 at a gross profit of P1,200. On June 1 2013, this installment account
receivable had a balance of P2,200 and it was determined that no further collections
would be made. Bengal therefore repossessed the merchandise. When reacquired, the
merchandise was appraised as being worth only P1,000. In order to improve its
salability, Bengal incurred costs P100 for reconditioning. What should be the loss on
repossessions attributable to this merchandise?
a. P220
b. P320
c. P880
d. P1,100
37. Standard Sales Corporation accounts for sales on the installment basis. The balances of
control accounts for Installment Contracts Receivable at the beginning and end of 2013
were:
Installment contract receivable - 2011
Installment contract receivable – 2012
Installment contract receivable – 2013
No. 37 – continued
Jan. 1,2013
P24,020
344,460
-
Dec. 31,2013
P67,440
410,090
During 2013, the company repossessed a refrigerator which had been sold in 2012 for P5,400
and P3,200 had been collected prior to default. The company sales and cost of sales figures are
summarized below:
Net sales
Cost of sales
2011
P380,000
247,000
2012
P432,000
285,120
2013
P602,000
379,260
The resale price of the repossessed merchandise is P2,000 after reconditioning cost of P200 and
a normal gross profit of 35%.
The total realized gross profit on December 31,2013 and the gain (loss) on repossession are:
a.
b.
c.
d.
P172,892.5 and P(381)
P172,852.5 and P(452)
P142,500 and P(452)
P142,500 and P452
38. The 680 Appliance Company reports gross profit on the installment basis. The following data are
available:
Installment sales
Cost of goods – installment sales
Gross profit
Collections:
2011 installment contracts
2012 installment contracts
2013 installment contracts
Defaults:
Unpaid balance of 2011
Installment contracts
Value assigned to repossessed
Merchandise
Unpaid balance of 2012
Installment contracts
Value assigned to repossessed
Merchandise
2011
P240,000
180,000
60,000
P45,000
2012
P250,000
181,250
68,750
2013
P300,000
216,000
84,000
P75,000
47,500
P72,500
80,000
62,500
P12,500
P15,000
6,500
6,000
16,000
9,000
No. 38 - Continued
The total realized gross profit after loss on repossession for 2013 is:
a.
b.
c.
d.
P49,775
P57,625
P48,975
P56,625
39. Partial trial balance of Lakan Appliance Corporation as of the end of the fiscal year September
30,2013 follows:
Debit
Credit
Deferred gross profit – 2012
P50,000
Installment account receivable - 2012
Installment account receivable – 2013
Installment sales
Inventory, September 30,2012
Loss on repossession
Purchases
Repossessions
sales
P12,500
150,000
375,000
62,500
3,750
435,000
2,500
312,500
The post closing trial balance on September 30,2012 shows the following balances of certain
accounts:
Installment contract receivable - 2012
P100,000
Deferred gross profit – 2012
50,000
The gross profit rate on regular sales during the year was 30%
The inventory of new and repossessed merchandise on September 30,2013 amounted to
P75,000. Unpaid balance on repossessed merchandise sale of 2012 is P6,250.
The total realized gross profit on December 31,2013 is:
a. P141,875
b. P101,250
c. P40,625
d. P140,875
40. Carlos Labung Appliance Co., sold a stove, costing P1,000 for P1,600 on September 2012. The
down payment was P160, and the same amount was to be paid at the end of each succeeding
month. Interest was charged on the unpaid balance of the contract at ½ of 1% a month,
payments being considered as applying first to accrued interest and the balance to principal.
After paying a total of P640, the customer defaulted. The stove was repossessed in February
2013. It was estimated that the stove had a value of P560 on a depreciated cost basis.
The realized gross profit and the gain (loss) on repossession on December 31,2013 are:
a. P232.76 and P(52.07)
b. P240.00 and P(52.07)
c. P232.76 and P(40.00)
d. P240.00 and P(40.00)
41. The Julia Appliance company makes all sales on installment contracts and accordingly reports
income on the installment basis. Installment contracts receivables are accounted for by years.
Defaulted contracts are recorded by debiting Loss on Repossession account and crediting the
appropriate Installment Contract Receivable account for the unpaid balance at the time of
default. All repossessions and trade-ins are recorded at realizable values. The following data
relate to the transactions during 2012 and 2013
2012
2013
Installment sales
P150,000
P198,500
Installment contract receivable, Dec. 31:
2012 sales
80,000
25,000
2013 sales
95,000
Purchases
100,000
120,000
New merchandise inventory, Dec. 31 at cost
10,000
26,000
Loss on repossessions
6,000
The company auditor disclosed that the inventory taken on December 31,2013 did not include
certain merchandise received as a trade-in on December 2,2013 for which an allowance was
given. The realizable value of the merchandise is P1,500 which was also the allowance on the
trade-in. No entry was made to record this merchandise on the books at the time it was
received. In 2013, a 2012 contract was defaulted and the merchandise was repossessed. At the
time of default, the repossessed merchandise had a fair value of P2,500. The repossessed
merchandise was neither recorded nor included in the physical inventory on December 31,2013.
The total realized gross profit at December 31,2013 and the adjusted gain (loss) on repossession
are:
Realized Gross profit
Gain(Loss) on repossesion
a. P70,000
P1,100
b. P70,000
(P1,100)
c. P50,400
P1,100
d. P50,400
(P1,100)
42. Kanlaon Corporation started operations on January 1,2012, selling home appliances and
furniture sets both under cash and under installment basis. Data on the installment sales
operations for the two years ended December 31, 2012 and 2013 are as follows:
2012
2013
Installment sales
P400,000
P500,000
Cost of installment sales
240,000
350,000
Cash collections on:
2012 installment contracts
210,000
150,000
2013 installment contracts
300,000
The balance of the Deferred Gross profit account on December 31,2013 is:
a. P130,000
b. P160,000
c. P190,000
d. P76,000
43. United Trading accounts for sales under the installment method. On January 1,2013 its ledger
accounts included the following balances:
Installment Receivable, 2011
P38,500
Installment Receivable, 2012
Deferred Gross Profit, 2011
Deferred Gross Profit, 2012
155,000
11,550
62,000
Installment sales in 2013 were made at a 42% gross profit rate. December 31,2013 account
balances before adjustments were as follows:
Installment Receivable, 2011
Installment Receivable, 2012
Installment Receivable, 2013
Deferred Gross Profit, 2011
Deferred Gross Profit, 2012
Deferred Gross Profit, 2013
The total realized gross profit on December 31,2013 is:
a. P90,350
b. P97,510
c. P98,910
d. P97,350
P-042,000
100,500
11,550
62,000
75,810
44. Presented below is the unadjusted trial balance, as of December 31,2013 of Moslim Products
Corporation:
Cash
P5,000
Installment Accounts Receivable - 2012
40,000
Installment Accounts Receivable - 2013
140,000
Inventory, December 31,2013
200,000
Other Assets
497,000
Trade Accounts Payable
P50,000
Unrealized Gross Profit - 2011
10,000
Unrealized Gross Profit – 2012
86,000
Unrealized Gross Profit – 2013
100,000
Capital stock
600,000
Retained Earnings
80,000
Repossession Gain
6,000
Operating expenses
50,000
________
P932,000
P932,000
The cost of goods sold had been uniform over the years at 60% of sales, and the company
adopts perpetual inventory procedures. On the installment sales, the company charges
installment accounts receivable and credits inventory and unrealized gross profit accounts.
Repossessions of merchandise have been made during 2013 due to some customers’ failure to
pay maturing installments. The analysis of these transactions have been summarized as follows:
Inventory
P7,500
Unrealized gross profit - 2011
800
Unrealized gross profit – 2012
2,400
Installment accounts receivable - 2011
2,000
Installment accounts receivable – 2012
Repossession gain
6,000
2,700
The repossessed merchandise were unsold at December 31,2013 and it was ascertained that
these were booked, upon repossession, at their original cost. A fair valuation would be a sales
price of P10,000 after recorditioning cost of P1,000 and a normal gross profit.
The realized gross profit from 2013 sales and the gain (loss) on repossession on December
31,2013 are:
a. P44,000 and (P200)
b. P44,000 and P200
c. P56,000 and P300
d. P56,000 and P200
45. The following selected accounts appeared in the trial balance of Union Sales as of December
31,2013
Debit
Credit
Installment Accounts Receivable, 2012 sales
P15,000
Installment Accounts Receivable, 2013 sales
200,000
Inventory, December 31,2012
70,000
Purchases
555,000
Repossessions
3,000
Regular Sales
P385,000
Installment sales
425,000
Unrealized Gross Profit, 2012
54,000
Additional information:
Installment Accounts Receivable, 2012 sales,
As of December 31,2012
Inventory of new and repossessed
Merchandise, December 31,2013
Gross profit rate on regular sales during the year
P120,000
95,000
30%
Repossession was made during the year on a 2012 sale and the corresponding uncollected
amount at the time of repossession was P7,750.
The total realized gross profit on December 31,2013 and the (loss) on repossession are:
a. P85,5000 and P(1,262.5)
b. P129,262.5 and P(1,262.5)
c. P43,762.5 and P1,262.5
d. P119,622.5 and P1,262.5
46. The books of Paiyakan Company show the following account balances on December 31,2013:
Accounts receivable
P313,750
Deferred gross profit (before adjustment)
38,000
Analysis of the accounts receivable reveals the following:
Regular accounts
P207,500
2012 installment accounts receivable
16,250
2013 installment accounts receivable
90,000
Sales on installment basis in 2012 were made at 30% above cost, and in 2013 at 33-1/3% above
cost. Expenses paid relating to installment sales were P1,500.
How much is the total comprehensive income on installment sales?
a. P10,000
b. P10,250
c. P11,000
d. P11,500
47. The Famcor Sales Company employs the perpetual inventory basis in the accounting for new
cars. On August 15,2012, a new car costing P165,000 and with a list price of P220,000 was sold
to Rose Castro. The company granted Ms. Castro an allowance of P85,000 on the trade-in of her
old car, the current value if which was estimated to be P81,700; the balance of P135,000 was
payable as follows: P35,000 cash at the time of purchase and twenty monthly payments of
P5,000 starting September 1, 2012.
On April 1,2013, Ms. Castro defaulted in the payment of the March 1,2013, installment. The new
car sold was repossessed, and its value to the seller was P40,000.
The total realized gross profit and the gain (loss) on repossession on December 31,2013 are:
a. P32,616.62 and P(13,298)
b. P32,616.62 and P13,298
c. P37,388.62 and P15,810.62
d. P27,844.62 and P(15,810.62)
48. The Jade Appliances Company started business on January 1,2013. Separate accounts were
established for installment and cash sales. On installment sales, the price was 106% of the cash
sales price. A standard installment contract was used whereby a down-payment of ¼ of the
installment price was required, with the balance payable in 15 equal monthly installment. (the
interest charge per month is 1% of the unpaid cash sale price equivalent at each installment.)
Installment receivable and installment sales were recorded at the contact price. When contracts
were defaulted, the unpaid balances were charged to Bad Debts Expense. The following data are
available:
Sales:
Cash sales
Installment sales
Repossessed sales
Inventory, January 1,2013:
Merchandise inventory
Purchases, 2013
New merchandise
Inventories, physical, December 31,2013
New merchandise
Repossessed inventory
P126,000
265,000
230
58,060
209,300
33,300
180
Cash collections on installment contract 2013:
Down payments
66,250
Subsequent installments (including interest of P9,252.84 on
all contracts except on defaulted contracts)
79,341
Five contracts totaling P1,060 were defaulted, in each case after 3 monthly installments were paid.
Interest should be recognized in the period earned.
The total realized gross profit on December 31,2013 is:
a.
b.
c.
d.
P99,024.85
P99,084.87
P99,184.85
P95,024.85
49. The following data were taken from the records of Camille Appliance Company before its
accounts were closed for the year 2013. The company sells exclusively on the installment basis
and its uses the installment method of recognizing profit:
2009
2010
2011
Installment sales
P400,000
P440,000
P420,000
Cost of installment sales
240,000
272,800
256,200
Operating expenses
100,000
94,000
96,000
Balances as of December 31:
Inst. Contracts Receivable -2011
220,000
110,000
28,000
Inst. Contracts Receivable -2012
250,000
92,000
Inst. Contracts Receivable -2013
238,000
During 2013, because some customers can no longer be located, the company wrote off P9,000
of the 2011 installment accounts and P2,800 of the 2012 installment accounts as uncollectible.
Also during 2013, a customer defaulted and the company repossessed merchandise appraised at
P2,400 after costs reconditioning estimated at P400. The merchandise had been purchased in
2011 by a customer who still owed P5,000 at the date of the repossession.
The total comprehensive income on December 31,2013 is:
a. P157,156
b. P61,000
c. P60,156
d. P59,156
50. Jing Trading Company, which started operations on January 2,2012, sells video equipment on
installment terms. Whenever a contract is in default, Jing repossesses the merchandise and
writes this off to a Loss on Defaulted Contracts account. Information regarding the repossessed
goods are not recorded in the books but are kept on a memo basis. Proceeds from the sale of
these goods are credited to the Loss on Defaulted Contracts account. The following information
are taken from the books of Jing:
December 31
2013
2012
Installment contracts receivable, 2012
P2,000
P31,500
Installment contracts receivable, 2013
40,000
Sales
125,000
75,000
Loss on defaulted contracts
4,275
250
Allowance for defaulted contracts
2,250
2,250
Additional information:
a. No repossessed video equipment was sold in 2012 or 2013 for more than the unpaid
balance of the original contract. A further analysis of the Loss on Defaulted Contracts
accounts showed the following breakdown:
2012
2013
Contracts
Contracts
Contracts written off
P3,750
P1,500
Less: sales of repossessed goods
800
175
Loss a defaulted contracts
P2,950
P1,325
The repossessed goods on hand on December 31,2013, all of which were repossessed from
2012 contracts, are valued at P200.
b. The P2,000 balance of the Installment Contracts Receivable 2012 account is currently due
and collectible.
c. The gross profit rates on installment sales were 40% in 2012 and 42% in 2013.
d. The rate of bad debts loss for 2013 is estimated to be the same as the 2012 experiences rate
based on sales:
The required balance of the allowance for Defaulted Contracts account and the realized
gross profit on December 31,2013 from 2012 sales are:
a. P3,675 and P10,300
b. P3,675 and P9,300
c. P3,675 and P10,300
d. P4,675 and P9,300
ANSWERS
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
C
C
B
A
C
C
D
D
C
A
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
A
A
A
B
C
A
A
D
A
A
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
D
D
D
A
D
C
A
A
B
B
31.
32.
33.
34.
35.
36.
37.
38.
39.
40.
D
C
A
B
C
B
B
A
A
A
41.
42.
43.
44.
45.
46.
47.
48.
49.
50.
B
D
A
B
B
B
A
A
C
A
SOLUTIONS AND EXPLANATIONS
1. The answer can be computed by using the basic formula, collections x gross profit
rate.
2012 sales
2013 sales
Collections during 2013
P600,000
P700,000
Gross profit rate
30%
40%
Realized gross profit
P180,000
P280,000
Total realized gross profit (P180,000 + P280,000) 460,000
2. Installment account receivable, 12/31/13
Gross profit rate
Deferred gross profit, December 31,2013
P200,000
40%
P80,000
3. Installment sales
Collections
Installment accounts receivable, 12/31/13
Gross profit rate (P250,000/P500,000)
Deferred gross profit, 12/31/13
Or
Deferred gross profit(P500,000 – P250,000)
Realized gross profit, 12/31/13 (P100,000x50%)
P500,000
100,000
400,000
50%
P200,000
250,000
50,000
Deferred gross profit, 12/31/13
P200,000
4. Realized gross profit (P2,020,000 x 40%)
Deferred gross profit, 12/31/13:
Installment accounts receivable, 12/31/13
(P16,000,000 - P2,020,000)
Gross profit rate
Deferred gross profit, 12/31/13
P808,000
5. Regular sales
cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Collections
Gross profit rate (P500,000/P1,000,000)
Total realized gross profit
General and administrative expense
Total comprehensive income
P600,00
300,000
P300,000
P13,980,000
40%
P5,592,000
P200,000
50%
100,000
400,000
100,000
P300,000
6. Installment sales
Cost of installment sales
Deferred gross profit
Realized gross profit (P300,000 x 40%*)
Deferred gross profit, 12/31/13
*Gross Profit Rate (P320,000/P800,000) = 40%
P800,000
480,000
320,000
120,000
P200,000
7. Installment sales
Less: Collections
Accounts written off
Installment accounts receivable, 12/31/13
Gross profit rate
Deferred gross profit, 12/31/13
P60,000
P35,000
5,000
8. Installment sales (P560,000/40%)
Less: installment accounts receivable, 12/31/13
Collections
Gross profit rate
Realized gross profit
40,000
20,000
30%
P6,000
P1,400,000
800,000
P600,000
40%
P240,000
9.
2012 Sales
2013 Sales
Total
Installment sales
Collections (RGP/GPR)
During 2010 (P150,000/P30%)
During 2011:
2010 sales (P90,000/30%)
2011 sales (P200,000/40%)
Installment accounts receivable 12/31/13
P1,000,000
P2,000,000
(500,000)
________
P500,000
10. Deferred gross profit (gain)
Realized gross profit:
Down payment
Installment collections excluding interest:
(P325,000 – P75,000)
Total collections
Gross profit rate (P270,000/P900,000)
Deferred gross profit, 12/31/13
(300,000)
(500,000)
P1,200,000
P1,700,000
P270,000
P150,000
250,000
400,000
30%
11. Installment accounts receivable, January 1
Installment sales
Total
Less: Installment accounts receivable, Dec. 31
Collections
Gross profit rate (P339,750/P755,000)
Realized gross profit
Installment accounts receivable, December 31
Gross profit rate
Deferred gross profit, December 31
120,000
P150,000
P755,000
950,000
P1,705,000
840,000
865,000
45%
389,250
P840,000
45%
P378,000
12. (1) Profit is recognized at the point of sale
Fair value of repossessed property
Less: Unrecovered cost (unpaid balance)
Loss on repossession
P1,150,000
2,000,000
P(850,000)
(2) Profit is recognized in proportion to collections
Fair value of repossessed property
Less: Unrecovered cost
Unpaid balance
Deferred gross profit (P2,000,000 x 40%)
Loss on repossession
P1,150,000
P2,000,000
800,000
1,200,000
P(50,000)
13. (1) total realized gross profit
Installment accounts receivable, 1/1/13
Installment accounts receivable, 12/31/13
Collections during 2013
Gross profit rates
Realized gross profit, 12/31/13
(Total, P3,044,250)
2013
P12,890,625
9,728,125
P3,162,500
32%
P1,012,000
2012
P8,387,500
3,025,000
P5,362,500
30%
P1,608,750
2011
P1,512,500
-0P1,512,500
28%
P423,500
(2) deferred gross profit, December 31,2013:
Installment accounts receivable, 12/31/13
Gross profit rates
Deferred gross profit, 12/31/13
2013
P9,728,125
32%
P3,113,000
2012
P3,025,000
30%
P907,500
2011
P-028%
P-0-
14. (1) Total realized gross profit
Deferred gross profit before adjustment
Deferred gross profit, end:
2011 sales (P12,000 x 35%)
2012 sales (P40,000 x 34%)
2011 sales (P130,000 x 32%)
Realized gross profit, 12/31/13
Total (P76,000)
2011
P10,500
2012
P28,900
2013
P96,000
______
P6,300
13,600
_______
P15,300
41,600
P54,400
2011
2012
2013
4,200
(2) Total collections in 2013
Installment accounts receivable, beg
2011 sales (P10,500/35%)
2012 sales (P28,900/34%)
2011 sales (P96,000/32%)
Installment accounts receivable, end
Collections during 2013
Total (P233,000)
P30,000
85,000
12,000
P18,000
40,000
P45,000
P300,000
130,000
P170,000
15.
Installment sales
Collections
Accounts written off
Installment accounts receivable, 12/31/13
Gross profit rate (P500,000/P1,000,000)
Deferred gross profit, 12/31/13
P1,000,000
(150,000)
(50,000)
800,000
50%
P400,000
16. The balance of Deferred Gross Profit Account on December 31,2013 is computed follows:
2012
P300,000
(150,000)
(100,000)
P50,000
30%
P15,000
Sales
Collections
Accounts written off
Installment accounts receivable, 12/31/13
Gross profit rates
Deferred gross profit, 12/31/13
Total (P75,000)
17. (1) Realized gross profit, December 31,2013
Regular Sales
Cost of regular sales (70%)
Gross profit on regular sales (30%)
Realized gross profit on installment sales (Sched 1)
Total realized gross profit
2013
P450,000
(150,000)
(150,000)
P150,000
40%
P60,000
P385,000
269,500
115,500
128,510
P245,010
Schedule 1:
Installment accounts receivable, 1/1/13
Installment accounts receivable, 12/31/13
Total credit
Less: credit for repossession (unpaid balance)
Collections
Gross profit rates:
2012 sales (P54,000/P120,000)
2013 sales (Schedule 2)
Realized gross profit, 12/31/13
Total (P129,510)
Schedule 2:
Installment sales
Cost of installment sales:
Inventory, January 1,2013
Purchases
Inventory, December 31,2013 (New)
Cost of sales
Cost of regular sales
Gross profit on installment sales
Gross profit rate (P161,500/P425,000)
2012
P120,000
15,000
105,000
7,200
P97,800
2013
P425,000
200,000
225,000
-0P225,000
45%
_______
P44,010
38%
P85,500
P425,000
P70,000
555,000
(92,000)
533,000
269,500
263,500
P161,500
38%
(2) loss on repossession
Repossession merchandise
Unrecovered cost:
Unpaid balance
P3,000
P7,200
Deferred gross profit (P7,200 x 45%)
Loss on repossession
3,240
3,960
P(960)
18. Total realized gross profit on December 31,2013 is computed below:
2012
Collections during 2013
P240,000
Gross profit rates on sales
25%/125%
Realized gross profit
P48,000
Total (P74,667)
2013
P160,000
20%/120%
P26,667
19.
Collections during 2013
Gross profit rate:
Installment sales:
Notes receivable (P32,000 + P62,000 + P3,600)
Unearned interest income (P7,167 + P3,600)
Installment sales
Cost of installment sales (P45,200 – P2,000)
Gross profit
Gross profit rate (P46,633/ P86,833)
Realized gross profit
20.
P32,000
P97,600
(10,767)
P86,833
43,200
P43,633
Collections during 2013 (P1,510,000 + P1,900,000 – P1,680,000)
Gross profit rate (P679,500/ P1,510,000)
Realized gross profit, 2013
50.25%
P16,080
P1,730,000
45%
P778,500
21 Zero, because the total cost of P2,000,000 is not yet fully recovered. The total collections
applying to principal as of December 31, 2013 is only P330,000 (P300,000 + P30,000), so no
income is yet to be recognized.
22. First the over- allowance on the equipment traded- in should be computed as follows:
Trade- in value
P30,000
Actual value:
Estimated sales price
25,000
Less: Reconditioning Cost
1,250
Gross profit(25,000 x 15%)
3,750
5,000
20,000
Over allowance
P10,000
The over allowance is treated as a deduction from the selling price of new equipment.
The realized gross profit can now be computed as show below:
Collections
Downpayment:
Cash
5,000
Actual value of Trade- in
20,000
25,000
Installment collection (3 mos. X 5,000)
15,000
Total
40,000
Gross Profit Rate – (15,000/ 75,000)
Realized gross profit, 12/31/2013
20%
8,000
23. the unrealized gross profit relating to the unpaid balance of P11,000 (P27,000-P16,000) is
3,740 (11,000x34%). The inventory of repossessed merchandise is to be decreased by this amount.
24. Collection during 2013
Gross profit rate (250,000/500,000)
REALIZED GORSS PROFIT
25. Installment accounts receivable-end:
Unrealized gross profit-end
Divide by GPR on sales (66-2/3% / 116-2/3%)
ADD: Collections
Installment Sales
100,000
50%
50,000
192,000
40%
26. Installment accounts receivable
Gross Profit Rate on Sales (66- 2/3% / 166-2/3%)
480,000
360,000
P840,000
P320,000
40%
Deferred gross profit, 12/31/2013
P128,000
27.
In Thousand Pesos
2012 Sales
Installment sales
2013 Sales
P1,200
P1,500
Collection:
During 2012
(630)
During 2013
(450)
(900)
(24)
-
96
600
40%
30%
P38.4
P180
Repossession (unpaid balance)
Installment accounts receivable, 12/31/2013
Gross Profit rate (GP/IS)
Deferred Gross Profit, 12/31/2013
Total balance is P218,400 (P38,400 + 180,000)
28. Fair market value of repossessed merchandise
Less: Unrecovered cost
Unpaid balance
Loss on repossession
P120,000
200,000
65,000
135,000
P(15,000)
29. Fair value of repossessed merchandise
P6,800
Unrecovered Cost:
Unpaid balance:
Sales
16,000
Collections:
Downpayment
3,200
Installment
3,200
6,400
9,600
Deferred gross profit (9,600 x 40%)
3,840 5,760
Gain on repossession
P1,040
30.
2012 Sales
Deferred gross profit – Dec.31,2013
Divide by GPR (GP/IS)
Installment accounts receivable, Dec.31,2013
2013 Sales
P9,000
P72,000
24%
30%
P37,500
P240,000
Total balance of receivable on Dec. 31,2013 is
P277,500
(P37,500 + 240,000)
31. Gross profit rate based on sales:
Cash (25%/125%)
20%
Charge (33-1/3% / 133-1/3%)
25%
Installment (50% - 150%)
33.33%
Total realized gross profit:
Cash sales (250,000 x 20%)
P50,000
Charge sales (400,000 x 25%)
100,000
Installment Sales (240,000 x 33.33%)
80,000
Total
P230,000
32. Appraised value of repossessed merchandise
P1,500
Less: Unrecovered cost:
Unpaid balance
3,500
Less: Deferred gross profit (3,500 x 35% *)
1,225
Loss on repossession
2,275
P775
35%
*Gross profit rate (P2,800 / 8,000)
33.
2012
2013
Sales
Sales
Collections:
Downpayment (1/3 of sales)
-
P110,000
Collection of installment receivables
77,000
70,000
Total
77,000
180,000
44%
45%
33,880
81,000
-
16,650
P33,880
97,650
2013
2012
Sales
Sales
37,000
27,000
330,000
235,000
367,000
262,000
45,500
-
Purchases
215,000
193,000
Total
260,500
193,000
60,000
45,500
200,500
147,500
P166,500
P114,500
45%
44%
Gross Profit rate (schedule 1)
Realized gross profit on Installment Sales
Realized gross profit on Cash Sales 2013 (P37,000 x 45%)
Realized Gross Profit (P131,530)
Schedule 1
Sales: Cash
Installment
Total
Cost of Sales:
Inventories, 1/1
Inventories 12/31
Cost of sales
Gross Profit
Gross profit rate (GP/IS)
34. P76,230 represents the total realized gross profit based on 2013 collections of Installment
Accounts Receivable of 2011 and 2012 sales.
2011
2012
Sales
Sales
P17,400
P205,400
Collections:
Installment accounts receivable, 1/1/13
Installment accounts receivable,
-
25,800
Total credits
17,400
179,600
Less: credit for repossession
______
200
Collections during 2013
17,400
179,400
Gross profit rate
36%
39%
Realized gross proft, 12/31/13
P6,264
P69,966
12/31/13
Total realized gross profit:
(P6,264 + P69,966)
P76,230
A P78 gain is realized from the sale of the repossessed merchandise as computed below:
Sales price
P200
Unrecovered cost:
Unpaid balance
P200
Less: deferred gross profit (P200 x 39%)
78
Gain on repossession
122
P78
35. on the first installment, a profit of P96.80 is realized which is computed as follows:
Installment sales
P1,650
Cost of sales
924
Gross profit
P726
Gross profit rate
44%
Realized gross profit
Collections
P220
Gross profit rate
44%
Realized gross profit
P96.8
On the second installment, a profit of P120 is realized as shown below:
Sales
P1,000
Cost of repossessed merchandise:
Appraised value
P460
Add: reconditioning cost
60
520
gross profit
P480
Gross profit rate (P480/P1,000)
48%
Realized gross profit:
Collections:
P250
Gross profit rate
48%
Realized gross profit
P120
36. Appraised value of repossessed merchandise
Unrecovered cost:
Unpaid balance
Less: deferred gross profit (P2,200 x 40%)
Loss on repossession
Gross profit rate (P1,200 + P3,000 ) =40%
P1,000
P2,200
880
1,320
(P320)
37. The realized gross profit is computed as follows:
2011
P24,020
24,020
______
24,020
Installment contract receivable, 1/1/13
Installment contract receivable, 12/31/13
Total credit
Credit for repossession
Collections
Gross profit rate:
2011: 133,000/380,000
2012:146,880/432,000
2013:22,740/602,000
Realized gross profit
Year of sales
2012
P344,460
67,440
277,020
2,200
274,820
2013
P602,000
410,090
191,910
_______
191,910
34%
_______
P93,438.8
37%
P71,006.7
35%
______
P8,407
Total realized gross profit, 12/31/13:
2011
2012
2013
Total
P8.407
93,438.80
71,006.70
P172,852.5
The loss on repossession is computed as follows:
Actual value of repossession merchandise:
Resale price
Less: Reconditioning cost
Gross profit (P2,000 x 35%)
P2,000
P300
700
Unrecovered cost
Unpaid balance (P5,400-P3,200)
Less deferred gross profit (P2,200 x 34%)
Loss on repossession
1,000
P2,200
748
P1,000
1,452
P(452)
38. This is computed by deducting the loss on repossession from the total realized gross profit:
Year of Sales
2011
2012
2013
Collections
P72,500
P80,000
P62,500
Gross profit rate
2011:P60,000/P240,000
25%
2012:P68,750/P250,000
27.5%
2013:P84,000/P300,000
______
______
28%
Realized gross profit
P18,125
P22,000
P17,500
Loss on repossession
Value of repossessed merchandise
P6,000
Unrecovered cost:
Unpaid balance
15,000
Less: deferred gross profit
2011:P15,000x25%
3,750
2012:P16,000x27%
_____
Unrecovered cost
11,250
Loss on repossession
(P5,250)
Total realized gross profit after loss on repossession
Total
57,625
P9,000
16,000
4,400
11,600
(P2,600)
(7,850)
P49,775
39. The computation is as follows:
Year of sales
2012
P100,000
(12,500)
87,500
(6,250)
81,250
50%
P40,625
Installment contract receivable, 1/1/13
Installment contract receivable, 12/31/13
Total credit
Credit for repossession
Collections
Gross profit rate (schedule )
Realized gross profit (P141,875)
Schedule 1 : gross profit rate
2012 sales:
Gross
= Deferred gross profit – 2012, 9/30/2012
profit rate
Inst. Contract rec’ble – 2012, 9/30/2012
P50,000
100,000
2013
P375,000
(150,000)
225,000
225,000
45%
P101,250
=
50%
2013 sales:
Installment sales
Less: cost of installment salesCost of goods sold:
Inventories, 9/30/12
Purchases
Cost of goods available
Less: inventories, 9/30/12
(P75,000-P2,500)
Cost of goods sold
P375,000
P62,500
435,000
497,500
72,500
425,000
Less: cost of regular sales (70% x P312,500)
Gross profit on installment sales
Gross profit rate: (P168,750/P375,000)
218,750
206,250
P168,750
45%
40. The realized gross profit is computed as follows:
Collections applying to principal (Sch. 1)
Gross profit rate (P600/P1,600)
Realized gross profit rate
P620.69
37.5%
P232.76
The loss on repossession is computed below:
Fair value of repossessed merchandise
Less: unrecovered cost
Unpaid balance (sch. 1)
Less: deferred gross profit (P979.31 x 37.5%)
Loss on repossession
P560
P979.31
367.24
612.07
(P52.07)
Schedule 1:
Date
Sept. 30
Sept. 30
Oct. 31
Nov. 30
Dec. 31
(1) Total
payment
(2) Applying to
Interest 005
x (4)
(3) Applying to
principal (1)
– (2)
P160
160
160
160
640
7.20
6.44
5.67
P19.31
P160
152.8
153.56
154.33
P620.69
(4) Balance of
principal (4)
– (3)
P1,600
1,440
1287.20
1,133.64
979.31
41. P70,000 is the sum of the realized gross profit in 2012 and 2013 which are computed as follows:
2012
2013
Installment contract receivable,
P80,000
P200,000
beg. (1/1/13)
Installment contract receivable,
25,000
95,000
beg. (1/1/13)
Total credits
55,000
105,000
Less: credit for repossession
6,000
Collections
49,000
105,000
Gross profit rate (schedule 1)
40%
48%
Realized gross profit 12/31/13 (P70,000)
P19,600
P50,400
The P1,100 adjusted loss is determined as follows:
Value of repossessed merchandise
Unrecovered cost:
Unpaid balance
Less: deferred gross profit (P6,000 x 40%)
Adjusted loss on repossession
P2,500
6,000
2,400
3,600
(P1,100)
Schedule 1 – gross profit rates:
2012 Sales:
Installment sales
Cost sales:
Purchases
Merchandise inventory, 12/31
Gross profit
Gross profit rate (P60,000/P150,000)
P150,000
P100,000
10,000
90,000
P60,000
40%
2013 Sales:
Adjusted installment sales
(P198,500 + P1,500, Trade-in)
Cost of sales:
Merchandise inventory, 1/1
Purchases
Goods available for sale
Merchandise inventory, 12/31
Gross profit
Gross profit rate (P96,000/P200,000)
P200,000
P10,000
120,000
130,000
26,000
104,000
P96,000
48%
42. The balance of deferred gross profit on Dec. 31,2013 is computed as follows:
Installment sales
Collections in 2012
Collections in 2013
Installment contract receivable, 12/31/13
Gross profit rate (GP/IS)
Deferred gross profit, 12/31/13 (P76,000)
2012
Sales
P400,000
(210,000)
(150,000)
40,000
40%
P16,000
2013
Sales
P500,000
(300,000)
200,000
30%
P60,000
43. Deferred gross profit before adjustment:
2011 sales
2012 sales
2013 sales
Total
Less: deferred gross profit, end (IAR end X GPR)
2011 sales
2012 sales (P42,000 x 40%)
2013 sales(P100,500 x 42%)
Total realized gross profit, 12/31/13
2012 GPR: P62,000/P155,000 = 40%
44. The total realized gross profit is computed below:
P11,550
62,000
75,810
149,360
P16,810
42,210
59,010
P90,350
2013 Installment sales:
Unrealized gross profit, 2013
Divided by GPR on sales
Less: Installment receivable – 2013,12/31/13
Collection from 2013 sales
Gross profit rate
Realized gross profit on 2013 sales
P100,000
÷ 40%
P250,000
140,000
110,000
40%
P44,000
The gain (loss) on repossession is computed as follows:
Actual value of repossessed
merchandise:
Sales price
Less: reconditioning cost
Gross profit (P10,000 x 40%)
Less: unrecovered cost
Unpaid balance:
2011 accounts
2012 accounts
Deferred gross profit:
2011 account(P2,000 x 40%)
2012 account(6,000 x 40%)
Gain on repossession
P10,000
P1,000
4,000
5,000
P2,000
6,000
8,000
800
2,400
3,200
P5,000
4,800
P200
45. Total realized gross profit is computed below:
Installment receivable, 1/1/13
Installment receivable, 12/31/13
Defaulted balance
Collections
Gross profit rates
Realized gross profit, 12/31/13
Total (P129,562.50)
Gross profit rate:
2012 sales (P54,000/P120,000)
2013 sales
Installment sales
Cost of installment sale:
Inventory, 1/1
Purchases
Inventory, 12/31
Repossession
Total
Cost of regular sale (70% x P385,000)
Gross profit
2012
Sales
P120,000
(15,000)
(7,750)
97,250
45%
P43,762.50
Year of sales
2013
Sales
P425,000
(200,000)
225,000
38%
P85,500
45%
P425,000
70,000
555,000
(95,000)
3,000
533,000
269,500
263,500
161,500
GPR(P161,500/P425,000)
The loss on repossession is computed as follows:
Value of repossessed merchandise
Less: unrecovered cost:
Unpaid balance
Deferred gross profit (7,750 x 45%)
Loss on repossession
38%
P3,000
P7,750
3,487.50
46.
Deferred gross profit, before adjustment
Less: deferred gross profit applicable to
Uncollected installment accounts:
2012: P16,250 x 30%/130%
2013:P90,000 x 25%
Realized gross profit
Less: Expenses
Net income on installment sales
P38,000
P3,750
22,500
47. The computation of the realized gross profit is shown below:
List price
P220,000
Less: trade-in overallowance P85,000-P81,700
3,300
Adjusted selling price
P216,700
Less: cost of sales
165,000
Gross profit
51,700
Value of old car trade-in
Cash received at time of sale
Installment collected: P5,000 x4
Total collections in 2013
Multiply by gross profit rate
Realized gross profit as of December 31,2013
Gain (loss) on repossession is computed as follows:
Adjusted selling price
Less: collections
In 2012 (No.47)
In 2013: P5,000 x 2
Defaulted balance
Multiply by cost rate
Unrecovered cost
Value of repossessed car
Less: unrecovered cost
Repossession gain (loss)
48.
Cash sales
Installment sales collected
Downpayment (P265,000 x ¼)
4,262.50
P1,262.50
26,250
P11,750
1,500
P10,250
100%
76.14%
23.86%
P 81,700
35,000
20,000
136,700
.2386
P32,616.62
P216,700
P136,700
10,000
146,700
P70,000
.7614
P53,298
P40,000
53,298
P(13,298)
P126,000
P66,250
Subsequent installments
Less: interest
Interest on defaulted contracts (sch.1)
Total collection
Gross profit rate (sch.2)
Realized gross profit, 12/31/13
P79,341
(9,252.84)
(20.67)
70,067.49
136,317.49
P262,317.49
37.75%
P99,024.85
Schedule 1 – interest on defaulted contracts:
The total interest is determined through the use of the following table:
Installment
(1) Equivalent
(2) Contact
(3) Interest
number
cash sales 1sales
income1%
(4-3)
price2-4
x1
First month
P1,000
P1,060
Second month
735
795
7.35
Third month
689.35
742
6.89
Fourth month
689.35
689
6.43
Total interest earned
20.67
(4) Cash
collection
265
53
53
53
Schedule 2 – gross profit rate:
The 37.75% gross profit rate is determined as follows:
Sales:
Cash sales
Installment sales at cash
sales price (P265,000/106%)
Total sales at cash sales
price
Cost of sales:
Merchandise inventory, January 1
Purchases
Goods available for sale
Less: merchandise inventory, Dec. 31
Gross profit
Gross profit rate (P141,940/P376,000)
P126,000
250,000
376,000
P58,060
209,300
267,360
33,300
234,060
141,940
37.75%
49.
Total realized gross profit (Sch.1)
Loss on repossession (Sch.2)
Total realized gross profit loss on repossession
Operating expenses
Net income, Dec. 31,2013
P157,156
(1,000)
156,156
96,000
P60,156
Schedule 1 – realized gross profit
Inst. Contract receivable, 1/1/13
2011
Sales
P110,000
2012
Sales
P250,000
2013
Sales
P420,000
Inst. Contract receivable, 21/31/13
Accounts written off
Defaulted accounts
Collections
Gross profit rate (GP/IS)
Realized gross profit (P157,156)
(28,000)
(9,000)
(5,000)
68,000
40%
P27,200
(92,000)
(2,800)
155,200
38%
P58,976
(238,000)
182,000
39%
P70,980
Schedule 2 - loss o repossession:
Appraised value of repossessed merchandise
Less: reconditioning cots
Actual value at time of repossession
Less: unrecovered cost
Unpaid balance
Deferred gross profit (P5,000 x 40%)
Loss on repossession
P2,400
400
2,000
5,000
2,000
3,000
P(1,000)
51. The computation of the required balance of the allowance for defaulted contracts account is
shown below:
2013 Bad debts rate
Loss on defaulted contracts
P250
Contracts written off
3,750
Sales of repossessed goods
(800)
Value of repossessed goods
(200)
Total
3,000
Divided by 2012 sales
÷75,000
Rate of bad debt loss
4%
Estimated loss from 2013 sales (125,000 x 4%)
Less: loss on defaulted contract – 2013 sales
Required balance of allowance, Dec. 31,2013
The realized gross profit on Dec. 31,2013 from 2012 Sales is computed below:
Installment contract receivable – 2012, 1/1/13
Installment contract receivable – 2012, 12/31/13
Installment contract, receivable written off – 2012 sales
Collections during 2013
Gross profit rate – 2012
Realized gross profit from 2012 sales, 12/31/13
P5,000
1,325
P3,675
P31,500
(2,000)
(3,750)
25,750
40%
P10,300