CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN
PROBLEM 1: TRUE OR FALSE
1. Under the “installment sales method,” realized gross profit is equal to gross profit rate multiplied by
the collection on sale. TRUE
2. Under the “installment sales method,” the deferred gross profit at any given point of time may be
determined by multiplying the balance of receivable by the gross profit rate. TRUE
Fact Pattern:
Monkey Co. uses the “installment sales method.” Monkey buys a banana for P2 and sells it for P10.
3. If Monkey collects P1 from the sale, Monkey’s realized gross profit is P0.50. FALSE
4. If the ending balance of Monkey’s installment receivable is P5, the deferred gross profit is P4. TRUE
5. If the ending balance of Monkey’s installment receivable is P3, the total collections during the period
must be P7. TRUE
PROBLEM 2: MULTIPLE CHOICE – THEORY
1. Groovy Co., a big corporation domiciled in the Philippines, enters into a 3-year contract with a customer.
At contract inception, Groovy assesses the customer’s ability and intention to pay the consideration in the
contract and concludes that the collectability of the consideration is significantly uncertain. For financial
reporting, Groovy should do all of the following except:
a. not recognize any revenue until the criteria under PFRS 15 are met.
b. recognize any consideration received from the contract as liability.
c. reassess the contract in subsequent periods using the guidance in PFRS 15.
d. apply the “installment sales method.”
2. Which of the following methods of recognizing revenue is in accordance with the principles of the
PFRSs?
Installment sales method
a. Yes
b. No
c. Yes
d. No
Cost recovery method (Traditional)
Yes
Yes
No
No
3. Which of the following equations is incorrect regarding the installment sales method?
a. Realized gross profit = Gross profit x Collection
b. Ending receivable = Sale Price – Collection
c. Deferred gross profit = Ending receivable x Gross profit rate
d. Gross profit rate = Ending receivable / Deferred gross profit
CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN
4. Merchandise received as trade-ins is recognized at
a. trade-in value
b. fair value
c. current cost
d. original cost
5. Cash collection is a critical event for income recognition in the
Installment sales method
a. Yes
b. No
c. Yes
d. No
Cost recovery method (Traditional)
Yes
Yes
No
No
PROBLEM 3: MULTIPLE CHOICE – COMPUTATIONAL
Installment sales method
1. Lunch Co. uses the “installment sales method.” Lunch Co.’s records show the following balances:
Installment accounts receivable – Jan. 1, 20x1
Installment sales
Cost of sales
Installment accounts receivable – Dec. 31, 20x1
1,000,000
800,000
600,000
How much are the realized gross profit in 20x1 and the deferred gross profit on Dec. 31, 20x1,
respectively?
a. 80,000; 60,000
b. 80,000; 120,000
c. 60,000; 80,000
d. 120,000; 80,000
2. Dinner Co. uses the “installment sale method.” Dinner Co.’s records show the following balances:
Installment receivable – beg.
Deferred gross profit (before year-end adjustment)
Collections during the year
Gross profit rate based on sales
200,000
400,000
20%
How much is the ending balance of the installment receivable?
a. 1,000,000
b. 800,000
c. 600,000
d. 400,000
CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN
Fact Pattern
Silent Night Co. uses the “installment sales method.” Silent Night sells an inventory costing P750,000 for
P1,000,000.
3. If Silent Night Co. reports deferred gross profit of P200,000 at year-end, how much are the total
collections during the year?
a. 800,000
b. 600,000
c. 200,000
d. 50,000
4. If Silent Night Co. reports deferred gross profit of P200,000 at year-end, how much is the realized gross
profit during the year?
a. 800,000
b. 600,000
c. 200,000
d. 50,000
5. If Silent Night Co. recognizes realized gross profit of P220,000, how much is the ending balance of
deferred gross profit?
a. 200,000
b. 75,000
c. 50,000
d. 30,000
6. If Silent Night Co. recognizes realized gross profit of P180,000, how much is the ending balance of the
receivable?
a. 280,000
b. 250,000
c. 200,000
d. 50,000
7. If Silent Night Co. recognizes realized gross profit of P160,000, how much are the total collections?
a. 720,000
b. 640,000
c. 360,000
d. 250,000
8. Home Co. reported deferred gross profits of P200,000 and P60,000 at the beginning and end of the
year, respectively. Home Co. consistently made sales at 25% gross profit rate. How much were the total
collections during the year?
a. 480,000
b. 560,000
c. 580,000
d. 620,000
CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN
9. Yellow Co.’s records on December 31, 20x2 show the following information:
Accounts receivable
Deferred gross profit (before adjustment)
313,750
38,000
Analysis of the accounts receivable reveal the following:
Regular accounts
20x1 installment accounts
20x2 installment accounts
207,500
16,250
90,000
Sales on an installment basis in 20x1 were made at 30% above cost, and in 20x2, at 33 1/3% above cost.
Expenses paid relating to installment sales in 20x2 were P1,500. How much is the 20x2 profit from
installment sales?
a. 9,750
b. 10,250
c. 11,750
d. 13,350
Use the following information for the next three questions”
Auto Co. uses the “installment sales method.” Auto Co.’s records show the following:
Installment sales
Cost of sales
Deferred gross profit, end. Bal.
20x1
20x2
20x3
20x1
300,000
225,000
20x2
375,000
285,000
20x3
360,000
252,000
52,500
15,000
54,000
9,000
72,000
10. How much is the total installment receivable on Dec. 31, 20x3?
a. 277,500
b. 279,500
c. 287,500
d. 297,500
c. 367,500
d. 376,500
11. How much are the total collections in 20x3?
a. 356,700
b. 365,700
12. How much is the total realized gross profit in 20x3?
a. 56,000
b. 69,000
c. 76,000
d. 96,000
CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN
Repossession
Use the following information for the next two questions:
The Bass Co., on September 30, 20x1, sold for P48,000 a piano costing P30,000. The down payment was
P4,800 and an equal amount was to be paid at the end of each succeeding month. Monthly interest of 1%
yield rate was to be charged on the unpaid balance of the installment contract, with payment applying
first to accrued interest and the balance to principal. After paying a total of P19,200, the customer
defaulted and the piano was correspondingly repossessed on February 28, 20x2, at which time it was
estimated to have a value of P16,800 on a depreciated cost basis. Bass Co. uses a perpetual inventory
system and records the total deferred gross profit at the time of sale.
13. How much was the realized gross profit at the end of 20x1
a. 7,200
b. 7,039
c. 6,764
d. 6,489
14. How much was the gain or loss on the repossession in 20x2?
a. 1,927
b. 1,867
c. 2,124
d. 1,678
Use the following information for the next two questions:
Cloudy Co. uses the installment sales method of accounting.
Information on Cloudy’s past operations follows:
Installment sales
Cost of sales
Gross profit rate
Installment accounts receivable, Dec 31:
From 20x1 installment sales
From 20x2 installment sales
From 20x3 installment sales
20x1
300,000
210,000
30%
20x2
405,000
243,000
40%
20x3
495,000
321,750
35%
180,000
-
135,000
300,000
-
60,000
195,000
390,000
In 20x3, a customer defaulted. Accordingly, the merchandise with an estimated value of P15,000 was
repossessed. The sale was made in 20x1 and the unpaid balance on the date of repossession was P22,500.
15. How much was the total realized gross profit in 20x3?
a. 98,400
b. 79,500
c. 89,400
d. 94,500
16. How much was the gain (loss) in the repossession in 20x3?
a. (690)
b. 690
c. (750)
d. 750
CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN
Trade-in
Use the following information for the next two questions:
Dawn Co. use the installment sales method. Dawn Co. sells merchandise costing P20,000 for P32,000 and
accepts old merchandise with the fair value of P12,000 as trade-in. Dawn Co. gives the customer a tradein value of P8,000 for the old merchandise and subsequently collects P12,000.
12. The journal entry to record the sale, including the traded-in merchandise, includes a
a. debit to “under allowance” of P4,000.
b. debit to “over allowance” of P4,000.
c. credit to “under allowance” of P4,000.
d. credit to “over allowance” of P4,000.
18. How much is the realized gross profit?
a. 6,857
b. 8,888
c. 10,667
d. 12.400
Cost recovery
19. Sound Co. uses the “cost recovery method.” The records of Sound Co. show the following information
on a sale made on December 31, 20x1:
Carrying amount of goods sold
Consideration from sale:
Cash down payment
10% Note payable
4,000,000
600,000
5,400,000
6,000,000
The 10% note payable is due in nine annual installments of P600,000 beginning December 31, 20x2. The
December 31, 20x2 installment was paid as scheduled, together with the interest of P540,000. What
amount of income should Sound Co. recognize in 20x2 from the sale and the financing?
a. 540,000
b. 1,440,000
c. 1,960,000
d. 0
20. Cold Breeze Co. uses the “cost recovery method.” Relevant information follows:
Sales
Cost of Sales
Cash collections:
From 20x1 sales
From 20x2 sales
20x1
20,000
16,000
20x2
30,000
18,000
14,000
-
6,000
24,000
How much is the gross profit recognized by Cold Breeze in 20x2?
a. 4,000
b. 6,000
c. 10,000
d. 0
CHAPTER 9 | INSTALLEMENT | GUERRERO
1. A type of sale which provides for a series of payments over a period of time.
a Credit sale
b. Auction sale
c. Installment sale
d. Barter sale
2. In installment sale, revenue is recognized
a. The point of sale
b. After the point of sale
c. Before the point of sale
d. All of the above
3. Under the cost recovery method, revenue is recognized until
a. Collections are equal to the amount of cost of goods sold
b. Collections are more than the cost of goods sold
c. Collections are less than the cost of goods sold
d. The selling price is collected
4. Under the gross profit realization method, first collections are regarded as
a. Expenses
b. Revenue
c. Cost recovery
d. Return of investment
5. Under this method, cash collection is regarded as a partial recovery of cost and a partial realization of
profit
a. Cost recovery method
b. Gross profit realization method
c. Installment method
d. None of the above
6. Under the installment method, the difference between the selling price and the cost of sale is
recorded as:
a. Deferred gross profit
b. Income
c. Asset
d. Expense
7. Under the installment method, realized gross profit is computed at the end of each
year by:
a. Multiplying the total collections by the gross profit rate based on cost
b. Multiplying the total collections by the gross profit rate based on sales
c. Multiplying the selling price by the gross profit rate
d. Multiplying the cost of sales by the gross profit rate
8. At time of repossession, repossessed merchandise is debited at its:
a. Original cost
b. Unrecovered cost
CHAPTER 9 | INSTALLEMENT | GUERRERO
c. Fair value after reconditioning cost
d. Fair value before reconditioning cost
9. Installment accounts receivable account is classified in the balance sheet under:
a. Current asset
b. Fixed asset
c. Other asset
d. Non-current set
10. In the balance sheet, deferred gross profit account is classified as:
a. Current asset
b. Deferred credits
c. Current liability
d. Long-term liability
MULTIPLE CHOICES- COMPUTATIONAL
9-1: Superman Company started operations on January 2, 2013. The following information is gathered
for 2013:
Installment accounts receivable, December 31
Deferred gross profit December 31 (before adjustment)
Gross profit rate based on sales
1,500,000
1,050,000
25%
What is the realized gross profit on sales for 2013?
a. P1,350,000
b. P1,125,000
c. P 810,000
d. P 675,000
9-2: Gross profit rates of Batman Company were 35%, 33% and 30% of sales for 2011, 2012 and 2013,
respectively. The following account balances are available at the end of 2013:
Year of Sale
2011
2012
2013
Installment account receivable
P 6,000
61,500
195,000
Deferred gross profit. (before adjustment)
P 7,230
60,750
120,150
What is the total realized gross profit to be reported in the Statement of Comprehensive Income for the
year ended December 31, 2013?
a. P 107,235
b. P 102,105
c. P 61,650
d. P 97,235
CHAPTER 9 | INSTALLEMENT | GUERRERO
9-3: The following information are obtained from the books of accounts of Robin, Inc. on June 30, 2013:
Deferred gross profit balance (After Adjustment)
Total collections on installment sales
Gross profit rate based on cost
P 202,000
440,000
25%
Robin, Inc. uses the installment method of accounting. What is Robin's total installment sales for 2013?
a. P1,560,000
b. P1,440,000
c. P1,450,000
d. P1,010,000
9-4: BMW Corporation sells car on a three year installment sales contract. On December 31, 2013, the
last day of BMW's first year of operations, the results of operations before adjustment are summarized
below:
Sales
Cost of installment sales
Operating expenses
P1,000,000
700,000
80,000
The total collections during the year including interest and financing charges of P100,000 is P500,000.
What is the net income of BMW Corporation for the year ended December 31, 2013?
a. P 220,000
b. P 140,000
e. P 150,000
d. P 120,000
9-5: In 2013, a merchandise was sold on installment basis by MB Company for P80,000 at a gross profit
of 25% on cost. During the year, a total of P42,500, including interest of P12,500 was collected on this
contract. In 2013, no collection was made on this sale, and the merchandise was repossessed. The fair
value of the merchandise is P34,000 after reconditioning cost of P4,000. What is the gain (loss) on
repossession?
a. (P10,000)
b. (P14,000)
c. P 10,000
d. (P20,000)
9-6: Casablanca, Inc, which began operations on January 2, 2013, appropriately uses the installment
method of accounting. The following information pertains to Casablanca's operations for the 2013:
Installment sales
Regular sales
Cost of installment sales
Cost of regular sales
Operating expenses
Collections on installment sales
P 1,000,000
600,000
500,000
300,000
100,000
200,000
In its December 31, 2013, what amount should Casablanca, Inc. report as deferred gross profit?
CHAPTER 9 | INSTALLEMENT | GUERRERO
a P400,000
b. P500,000
c. P320,000
d. P150,000
9-7 JI Company sold goods on installment. For the year just ended, the following were reported:
Installment sales
Cost of installment sales
Collections on installment sales
Repossessed accounts
Fair value of repossessed merchandise
3,000,000
2,025,000
1,800,000
200,000
120,000
The repossession resulted to:
a. Gain of P5,000
b. Loss of P80,000
c. No gain, no loss
d. Loss of P15,000
9-8: In July, 2012, Sta. Lucia Company who uses the installment method of accounting sold land costing
P90,000 for P240,000, receiving P35,000 cash as down payment and a mortgage note for the balance
payable in monthly installments. Installment received in 2012 reduced the principal of the note to a
balance of P200,000. The buyer defaulted on the note at the beginning of 2013 and the property was
repossessed. The property had an appraised value of P165,000 at the time of repossession. The realized
gross profit in 2012 and the gain (loss) on repossession in 2013 amounted to:
a.
b.
c.
d.
Realized Gross Profit
15,000
25,000
9,000
2,500
Gain (loss) on Repossession
(90,000)
90,000
(2,500)
3,500
9-9: On April 1, 2013, GE Company sold for P7,000 a refrigerator which had a cost of P4,550. A down
payment of P750 was made with the provision that additional payments of P625 be made monthly
thereafter. Interest was to be charged at a monthly rate of 2 percent on the unpaid balance of the
principal; the monthly installment was to apply first to the interest then to the balance of the principal.
After completing four months installment the customer defaulted and the refrigerator was repossessed.
At this time, the fair value of the refrigerator (used) was estimated to be P1,875. The gain (loss) on
repossession and the realized gross profit to be recognized in 2013 are:
a.
b.
c.
d.
Gain (loss) on Repossession
(P 847.98)
(P 847.98)
(P562.50)
P 562.50
Realized Gross Profit
P 1,137.50
P 983. 78
P 875.00
P 983.78
CHAPTER 9 | INSTALLEMENT | GUERRERO
9-10: Lexus Company, which began operations on January 3, 2012, appropriately used the installment
method of revenue recognition. The following information pertains to Lexus Company's operations for
2012 and 2013:
Sales
Collections from:
2012 sales
2013 sales
Accounts written off:
2012 sales
2013 sales
Gross profit rates
2012
300,000
2013
450,000
100,000
-
50,000
150,000
25,000
30%
75,000
150,000
40%
What amount should Lexus Company report as deferred gross profit in its December 31, 2013 Statement
of Financial Position for 2012 and 2013 sales?
a. P112,500
b. PI25,000
c. P 75,000
d. P 80,000
9-11: On January 2, 2012, Mustang Company sold a car to Mr. De Jesus for P1,050,000. On this date, the
car cost P735,000. Mr. De Jesus paid P150,000 as down-payment and signed a P900,000 interest bearing
note at 10 percent. The note was payable in three annual installments of P300,000 beginning January 1,
2013. Mr. De Jesus made a timely payment for the first installment on January 1, 2013 of P390,000
which included interest of P90,000 to date of payment. Mustang Company uses the installment method
of accounting. In its December 31, 2013 Statement of Financial Position, what amount should Mustang
Company report as deferred gross profit?
a. P 180,000
b. P 153,000
c. P 270,000
d. P 225,000
9-12: SM Corporation started operations on January 2, 2012 selling home appliances and furniture on
installment basis. For 2012 and 2013, the following data represented operational details:
Installment sales
Cost of installment sales
Collections on installment sales:
2012 sales
2013 sales
2012
1,200,000
720,000
630,000
-
2013
1,500,000
1,050,000
450,000
900,000
On January 8, 2013, an installment sale account in 2012 defaulted and the merchandise with fair value
of P15,000 was repossessed. The related installment receivable balance as of date of default and
repossession was P24,000. What is the balance of the Unrealized gross profit account as of the end of
2013?
a. P228,000
CHAPTER 9 | INSTALLEMENT | GUERRERO
b. P218,400
c. P192,000
d. P275,000
9-13: Microstation, Inc. sold computer equipment on installment basis on October 1, 2013. The cost to
the company was P60,000 but the installment sales price was set at P85.000. Terms of payment
included the acceptance of a used computer equipment with a trade-in value of P30,000. Cash of P5,000
was paid in addition to the trade-in equipment with the balance to be paid in ten (10) monthly
installments due at the end of each month commencing the month of sale. The estimated selling price
of the used computer equipment after reconditioning cost of P1,250 is P25,000. A 15 percent gross
profit was usual from sale of used equipment. What is the gross profit to be realized from the 2013
collections?
a. P34,000
b. P10,000
c. P 8,000
d. P 4,000
9-14: On December 31, 2012, Jacinto Steel Inc. sold construction equipment to Anthony Company for
P3,600,000. The equipment had cost P2,400,000. Anthony Company paid P600,000 cash on December
31, 2012 and signed a P3,000,000 note bearing interest at 10 percent payable in five annual installments
of P600,000. Jacinto Steel, Inc. appropriately accounted for the sale under the installment method. On
December 31, 2013, Anthony Company paid P900,000 including interest of P300,000. For the year
ended December 31, 2013, what total amount of revenue should Jacinto Steel. Inc. recognized from the
construction equipment sale and financing?
a. P 300,000
b. P 200,000
c. P 500,000
d. P 240,000
9-15: ACA Video Company sells betamax equipment. It maintains its accounting records on a calendar
year basis. On October 1, 2012, ACA Video Company sold a television set to Mr. Santiago. The cost of the
set was P18,000, and the set was sold for P24,000. A down-payment of P6,000 was received along with a
contract calling for the subsequent payment of P1,000 on the first day of each month starting on the
following month. No interest was added to the contract. Mr. Santiago paid the monthly installments
promptly on November 1 and December 1 in 2012. He also made seven installment payments in 2013
after which he defaulted on the contract. The set was then repossessed on November 1, 2013. Assuming
the repossessed set has a fair value of P4,000, what is the gain (loss)
on repossession to be recognized?
a. P (2,750)
b. P 2,750
c. P 750
d. P1,500
9-16: Gothong. Inc. sells automatic voltage regulators costing P700 at a price of P1,200. Cardinal Audio
buys a dozen voltage regulators on installment and trade-in six (6) of its old units at a trade-in value of
P300 cach. Gothong, Inc. spends P25 to recondition the old units and sells them for P315. Gothong, Inc.
expects a 10 percent gross profit from the sale of used voltage regulators. How much is the overallowance granted by Gothong, Inc. on the trade-in?
CHAPTER 9 | INSTALLEMENT | GUERRERO
a. P 249
b. P 150
c. P 339
d. P 189
9-17: The books of Concepcion, Inc. show the following balances on December 31, 2013:
Accounts Receivable
Deferred Gross Profit (before adjustment)
627,500
76,000
Analysis and aging of the accounts receivable reveal the following:
Regular Accounts
2012 installment accounts
2013 installment accounts
P415,000
32,500
180,000
Sales on an installment basis in 2012 were made at 30 percent above cost, in 2013, at 33 1/3 percent
above cost. What is the total realized gross profit for the year ended December 31, 2013:
a. P 23,500
b. P 52,500
c. P 45,000
d. P 69,750
9-18: AMG Corporation sells goods on installments basis. At year end gross profit is recognized in
proportion to collections. The following data are obtained from the records of the AMG Corporation:
Installment receivable:
2011 sales
2012 sales
2013 sales
January 7
December 31
120,100
1,772,300
-
337,200
2,050,450
Sales and cost of sales for the three years are as follows:
2011
2012
2013
Sales
1,900,000
2,160,000
3,010,000
Cost of Sales
1,235,000
1,425,600
1,896,300
In 2013, the company repossessed merchandise with an estimated resale value of P10,500 after
reconditioning costs of P300. AP1,700 gross profit was normal from sale of repossessed merchandise.
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 accounts receivable. For defaults and
repossessions, the company debits Inventory of repossessed merchandise account and credits
Installment accounts receivable for the unpaid balance. What is the amount of adjustment on the
Inventory of repossessed merchandise to the extent of the unrealized gross profit?
a. A decrease of P2,500
b. A decrease of P6,240
c. Zero
d. A decrease of P3,740
CHAPTER 9 | INSTALLEMENT | GUERRERO
9-19: The following information pertains to sale of real estate by Filstate Corporation on December 31,
2012:
Sales price:
Cash down-payment
Mortgage Payable
Cost
600,000
5,400,000
4,000,000
The mortgage payable is to be paid in nine annual installments of P600,000 beginning December 31,
2013 plus interest of 10 percent. The December 31, 2013 installment was paid as scheduled, together
with interest of P540,000. Filstate Corporation uses the cost recovery method of revenue recognition.
What amount of income should Filstate Corporation recognize in 2013 from the sale of real estate?
a P 540,000
b. None
c. P 1,040,000
d. P 740,000
9-20: Presented below are the information taken from the books of Four Sisters Company:
2012
2013
125,000
63,500
187,500
100,000
75,000
31,250
25,000
112,500
45,000
31,250
100,000
37,500
-
137,500
25,000
62,500
Sales:
Regular
Installment
Cost of goods sold:
Regular
Installment
Operating expenses
Collections on accounts from:
Regular sales
Installment sales 2012
Installment sales 2013
What is the net income for the year ended December 31, 2013?
a. 78, 125
b. 93, 750
c. 98, 750
d. 90, 625
9-21: The following data pertain to installment sales of Heart’s Store:
Down payment, 20%
Installment sales:
2011
545,000
2012
785,000
2013
968,000
Mark-up on cost, 35%
Collections after down payment are:
40% during year of sale
CHAPTER 9 | INSTALLEMENT | GUERRERO
35% during the year after
25% on the third year
What is the balance of Deferred gross profit – 2012 at December 31, 2012?
a. 97,689
b. 131,880
c. 141,112
d. 114,063
9-22: JGG Company began operations on June 1, 2013. The following information extracted from its
records at year-end:
Cost of installment sales
1,093,750
Cost of regular sales
1,050,000
Markup on installment sale
140% of cost
Markup on regular sale
33 1/3 on sales
Balances at December 31, 2013:
Installment accounts receivable
1,575,000
Accounts Receivable
735,000
Operating expenses
70% of realized gross profit
What is the net income for the year ended December 31, 2013?
a. 341,250
b. 267,750
c. 90,157
d. 174,000
9-23: TMT Company, which began operations on January 2, 2013 appropriately uses the installment
method of accounting. The following data pertain to 2013 operations:
Installment sales
Regular sales
Cost of regular sales
Cost of installment sales
Fair value of repossessed
merchandise
900,000
375,000
215,000
630,000
Operating expenses
72,000
Collections (including interest of P24,000)
312,000
Installment accounts written-off due to defaults 44,000
Repossessed accounts
100,000
Reconditioning cost
4,000
54,000
What is the net income for the year ended December 31, 2013?
a. P 151,600
b. P 127,600
c. P 158,400
d. P 165,600
9-24: Sulu Company is a dealer of air conditioners. For the period May 1, 2013 to May 31, 2013 Sulu
Company gives a trade discount of 10% to all its buyers. On May 1, 2013, five units of air conditioners
with a total list price of P100,000 and total cost of P59,800 were sold to Mr. Ramos. Sulu Company
granted an allowance of P10,000 for Mr. Ramos' used air conditioners as trade in although the current
fair value is P12,000. The balance was payable as follows: 20% of the balance paid at the time of
CHAPTER 9 | INSTALLEMENT | GUERRERO
purchase; the rest is payable in 10 months starting June 1, 2013. A 15% gross profit rate is usual from
the sale of secondhand air conditioners.
After six months of paying, Mr. Ramos defaulted in the payment of December 1, 2013. The five units
were repossessed, and it would require P2,000 reconditioning cost for each unit before it could be
resold for P6,000 each.
1. How much is the gain (loss) on repossession to be recognized on December 1, 2013?
a. P 3,360
b. P (3,360)
c. P 1,760
d. P (1,760)
2. What is the total realized gross profit under the installment method to be adjusted on December 31,
2013?
a. P 23,240
b. P 19,040
c. P 18,496
d. P 22,576
9-25: On July 10, 2013, Toyota Motors, Inc. sold a new car to Mr. Sy for P850,000. The car costs Toyota
P650,625. Mr. Sy paid 25% cash down-payment and traded his old car. Toyota granted an allowance of
P80,000 on the old car traded, the balance payable in equal monthly installment payments. The monthly
installment amounts to P30,000 inclusive of 12% interest on the unpaid balance of the principal amount
of obligation. The old car traded in has a selling price of P120,000 after expending reconditioning cost of
P22,500.
After paying three installment, Mr. Sy suffered major financial setback incapacitating him to continue
paying. The car was subsequently repossessed. When reacquired, the car was appraised to have a fair
value of P300,000.
1. What is the gain (loss) on repossession?
a. P (62,617.50 )
b. P 62,617.50
c. P(62,716.50)
d. P 62,716.50
2. Under the instalIment method, how much is the realized gross profit to be recognized at the end of
the year?
a. P 96,003
b. P 75,625
c. P 100,000
d. P 90,073
9-25: Computers, Inc. sells computers on the installment basis. For the year ended December 31,2013,
the following were reported:
Cost of installment sales
525,000
CHAPTER 9 | INSTALLEMENT | GUERRERO
Loss on repossessions
Fair value of repossessed merchandise
Account defaulted
Deferred gross profit, December 31
13,500
112,500
180,000
108,000
How much was collected during the year?
a. P210,000
b. P264,000
c. P390,000
d. P415,715
9-26: Kia Motors sells cars both on installment and cash basis. On March 30, 2013, Kia Motors sold a car
to Mr. Tom for P525,000 costing P414,000. A used car is accepted as down payment, P128,000 being
allowed on the trade-in. The used car can be resold for P160,200 after reconditioning cost of P7,660.
The company expects to make a 20% gross profit on the sale of used car. The balance of the sale is to be
paid on a 10-month installment basis starting May 1, 2013.
Mr. Tom defaulted payment starting November 1, 2013 and the car was immediately repossessed. The
repossessed car was appraised at a value of P93,750 at the time of repossession. Kia Motors had to incur
additional cost of repairs amounting to P9,250 before the car was subsequently resold on December
1,2013 for P128,7S0 cash to Mr. Lim. .
1. What is the realized gross profit on December 31, 2013?
a. P 97,490
b. P 98,990
c. P 71,740
d. P 47,640
2. What is the net income for the year ended December 31,2013?
a P64,200
b. P38,450
c P49,100
d P40,100
9-27: My Home, Inc. sells appliances on installment basis. Below are some of the information from the
records of the company.
2013
2012
2011
Cost of sales
P850,000
P686,000
P596,160
Gross profit on sale:
32%
30%
28%
Collections on:
2013 sales
425,000
2012 sales
258,000
320,000
2011 sales
185,000
152,000
280,000
During 2012, write-offs of 2011 unpaid accounts were made amounting to P7,200. During 2013,
repossessions were made on defaulted accounts on 2012 sales for which unpaid balance amounted to
P4,200. The fair value of the repossessed merchandise is P3,800.
How much is the total deferred gross profit as of December 31, 2013?
CHAPTER 9 | INSTALLEMENT | GUERRERO
a. P 443,680
b. P 440,404
c. P 428,080
d. P 440,176
9-28: SM Appliance Company uses the installment method of accounting. Pertinent data from the
company's records show the following:
Installment sales
Cost of installment sales
Deferred gross profit, December 3 1:
2011
2012
2013
2011
P 750,000
562,500
2012
P 937,500
712,500
2013
P 900,000
630,000
141,250
-
45,000
150,000
-
30,000
195,000
1. How much is the total collection during 2013?
a. P 930,000
b. P 750,000
c. P 250,000
d. P 850,000
2. What is the total balance of the Installment Accounts Receivable account as of December 31, 2013?
a. P775,000
b. P750,000
c. P770,000
d. P800,000
INSTALLMENT SALES | DAYAG
1. MM Company began operations on January 1, 2015 and appropriately uses the installment
method of accounting. B. 390,000
2. TT Company, which began business on January 1, 2015, appropriately uses the installment sales
method of accounting. D. 150,000 & 60,000
3. Dudong Electronics makes all of its sales on credit accounts for them using the installment sales
method. For simplicity, assume that all sales occur on the first day of the year. Dudong
Electronics charged 18% interest on the unpaid installment balance…The interest income C.
35,640
4. Dudong Electronics makes all of its sales on credit accounts for them using the installment sales
method. For simplicity, assume that all sales occur on the first day of the year. Dudong
Electronics charged 18% interest on the unpaid installment balance…The realized gross profit C.
37,184
5. The books of Harry Co. show the following balances on December 31,2016 D. 10,250
6. DJ Co. accounts for installment sales on the installment basis. On January 1, 2016, ledger
accounts included the following balances D. 102,834
7. Dipolog Company sells appliances on the installment basis. Below are information for the past
three years B. 110,000
8. On January 1, 2015, Art Company sold its idle plant facility to Tony, Inc. for 1,050,000 B. 180,000
9. On October 1, 2015, Rodel Corporation, a real estate developer, sold land to Gerry Company for
5,000,000 A. 0
10. Asser Computer Co. began operation at the beginning of 2016 C. 4,675,000
11. Conrado Motors sells locally manufactured jeepneys on the installment basis B. 3,044,250
12. The various documents and records which were recovered immediately after a fire gutted its
premises, EMC Marketing Co. gathered the following information (the company uses the
installment method of accounting) B. 918,000
13. EMC Motors, a dealer of a motor vehicle, sales exclusively on installment basis. One of its
customers, Mr. Ambo purchased a motorcycle for 45,375. B. 3,300
14. Lane Company, which began operations on January 1, 2016 appropriately uses the installment
method of accounting C. 400,000
15. The Central Plains Subdivision sells residential subdivision lots on installment basis A. 378,000
16. Gema, Inc. began operations on January 1, 2016 and appropriately uses the installment method
of accounting C. 240,000
17. Vic Corporation, which began business on January 1, 2015, appropriately uses the installment
sales method of accounting D. 1,500,000
18. Cente, Inc. appropriately uses the installment method of accounting to recognize income in its
financial statements B. 277,500
19. The following selected accounts appeared in the trial balance of union Sales as of December 31,
2016 A. 129,262.50 & (1,262.50)
20. Gloria Corporation started operations on January 1. 2015 selling home appliances and furniture
sets both for cash and on installment basis B. 76,000 & 200
21. Jane Enterprises uses the installment method of accounting and it has the following data at the
year end D. 840,000
22. The Cindy, Inc. began operating at the beginning of the calendar year 2016 and using the
installment method of accounting, presented the following data for the first year B. 128,000
INSTALLMENT SALES | DAYAG
23. These data pertain to installment sales of Kester Store D. 621, 640 & 161,166
24. On January 2, 2016, the following are some data of the Claire Hills Subdivision, a fully-developed
subdivision which started sales in 2016. B. 717,570 & 673,100
25. The Jaja Sales Co. which began the appliances business on January 1, 2014 reports gross profit
on the installment basis C. 86,437.50 & 11,775
26. The Mercy Sales Co. employs the perpetual inventory basis in its accounting for new cars. C.
32,617 & (13,298)
27. Gianne Co. sold a computer on installment basis on October 1, 2015 C. 11, 520
28. Following data pertain to Mabait Company which sells appliances on the installment basis C.
167,960 & (800)
29. Mr. Matias is a dealer in appliance who sells on an installment basis. A refrigator which originally
cost 9,240 was sold by him for 16,500 to Jose who made a down payment of 2,200, but
defaulted in subsequent payments C. 968 & 1,200
30. The Matalino Furniture Company appropriately used the installment sales method in accounting
for the following installment sale C. 320
31. Spicer Corporation has a normal gross profit on installment sales of 30% C. a 3,300 loss
32. Fryman Furniture uses the installment sales method. No further collections could be on an
account with a balance of 18,000 B. 4,800
33. Oliver Co. uses the installment sales method. When an account had a balance of 8,400 no
further collections could be made and the dining room set was repossessed D. 180 gain
34. Marceliano Sales Corp. accounts for sales on the installment basis, The balances of the control
accounts for Installment Contracts Receivable at the beginning and end of 2016 were A. (381) &
172,852.50
35. Gizelle, Inc. started operation at the beginning of 2016, selling home appliances exclusively on
the installment basis B. (9,000)
36. Since there is no reasonable basis for estimating the degree of collectability, Bloopers Company
uses the installment method of revenue recognition for the following sales D. 125,000
37. James Smith Appliance Co. sold an equipment costing 10,000 for 16,000 on September 30, 2015
D. 2,328 & (521)
38. On September 30, 2015, Barry bought a car for 3,600,000…. What is the total collection on
January 31, 2016 B. 214,000
39. Barry is to make equal monthly payments, each payment to apply first as interest at 12% on the
unpaid principal and the balance as a reduction in principal C. 1,223,796.90
40. On September 30, 2015, Barry bought a car for 3,600,000…. What is the approximate effective
interest rate if monthly payments of 200,000 plus interest at 12% charged on the original
principal amount of 360,000 D. 39.38%
41. Sharon Company uses the installment sales method in accounting for its installment sales A.
2,500 loss & 6,500
42. The following table are available for Charo Company D. 25,275
43. On January 1, 2015, Janette Company sold 20,000 square meters of farmland for 600,000 to
Michelle, taking in exchange a 10% interest bearing note B. -0- , -0- , 17,462
44. On June 1, 2015, the Foster Company sold inventory to the Ushman Corporation for 400,000 D.
250,000 ; 62,500 ; -0-
INSTALLMENT SALES | DAYAG
45. Johnson Enterprises uses the cost recovery method for all installment sales… The installment
sales in 2016 B. 105,000
46. Johnson Enterprises uses the cost recovery method for all installment sales… The cost of
installment sales in 2014 D. 49,600
47. Johnson Enterprises uses the cost recovery method for all installment sales… The gross profit
rate in 2015 B. 41%
48. Johnson Enterprises uses the cost recovery method for all installment sales… The collection in
2016 for 2015 sales C. 43,700
49. Johnson Enterprises uses the cost recovery method for all installment sales… The realized gross
profit on installment sales in 2014 D. 0
50. Johnson Enterprises uses the cost recovery method for all installment sales… The realized gross
profit on installment sales in 2015 D. 22,400
51. Coaster manufactures and sells logging equipment C. 560,000
52. Coaster manufactures and sells logging equipment…. Coaster uses the cost recovery method of
accounting for its installment sales B. 240,000
53. Pampanga Industrial sells machinery on the installment plan…Compute the realized gross profit
on installment sales C. 179,119
54. Pampanga Industrial sells machinery on the installment plan…Compute the total income for
2015 C. 206,340
55. Pampanga Industrial sells machinery on the installment plan… Compute the total income for
2016 B. 108, 471
56. Pampanga Industrial sells machinery on the installment plan…. Compute the realized gross profit
on installment sales A. 0
57. Pampanga Industrial sells machinery on the installment plan… Compute the total income for
2015 A. 27, 221
58. Pampanga Industrial sells machinery on the installment plan…. Compute the total income for
2016 B. 101,418
59. The Ana Motors Company makes all sales on installment contracts and accordingly reports
income on the installment basis B. 70,000 & (1,100)
60. On January 1, 2015 Blue Company commenced its sales of gas stoves B. 17,437 & 131,530
61. The trial balance of Dumaguete Appliance Corporation as of the end of the fiscal year on
September 30, 2016…..The total realized gross profit for the fiscal year D. 235, 625
62. The trial balance of Dumaguete Appliance Corporation as of the end of the fiscal year on
September 30, 2016…..The correcting entry for repossession made on a sale A. Deferred gross
profit 3,125
63. The trial balance of Dumaguete Appliance Corporation as of the end of the fiscal year on
September 30, 2016…….Compute the net income for the fiscal year D. 137,500
64. The following selected accounts are taken from the trial balance on December 31, 2016 of Cebu
Company……If all sales were on cash basis, the total sales… B. 600,000 & 234,000
65. The following selected accounts are taken from the trial balance on December 31, 2016 of Cebu
Company…..The cash collections on installment sales for C. 41,000 ; 57,000, 176,400
66. The following data were taken from the records of Samely Company, before the accounts are
closed for the year 2016 …………..Compute the total realized gross profit D. 157,156 & 600
INSTALLMENT SALES | DAYAG
67. The following data were taken from the records of Samely Company, before the accounts are
closed for the year 2016 ………….The correcting entry… A.Deferred gross profit 3,600
68. The Precious Appliance Company started business on January 1, 2016. Separate accounts were
established for installment and cash sales…….The gross profit percentage.. C. 37.75%
69. The Precious Appliance Company started business on January 1, 2016. Separate accounts were
established for installment and cash sales …….The total interest earned… A.20.67
70. The Precious Appliance Company started business on January 1, 2016. Separate accounts were
established for installment and cash sales…… Compute the net gain or loss… C.39.15
71. On January 15, 2015, AA Company enters into a contract to build custom equipment for BB
Company C. recorded on March 31,2015
72. CC Computers manufactures and sells pagers and radio paging systems which include a 180 day
warranty on product defects D. a credit to Unearned service revenue of 1,440
73. DD Inc. manufactures and sells stereo systems that include an assurance-type warranty for the
first 90 days D. credit to unearned warranty revenue 960
74. A contract is an agreement that creates enforceable rights and obligations
75. On July 31, EE Company contracted to have two products built by FF Company for a total of
222,000 D. debit to contract assets for 120,000
76. GG Builders enters into a contract with a customer to build a warehouse for 1,020,000 on March
30, 2015 with a performance bonus of 60,000 if the building is completed by July 31, 2015 A.
1,074,000
77. On June 1, 2015, HH Company sold equipment to II Company. In exchange for a zero-interest
bearing note D. 60,000 sales rev & 3,500.40 interest rev
78. JJ Auto Parts sells parts to KK Car Repair during 2015 C. credit to sales revenue for 43,512
79. Zuellig Pharmaceuticals entered into a licensing agreement with Janitor Lab for a new drug
under development B.6,885,000
80. XX Company is a full-service technology company. They provide equipment, and installation
services as well as training D. 72,000 ; 48,000 and 24,000
81. XX is a full-service technology company. C. credit to unearned service revenue of 24,000
82. Swimming Pool Company sells prefabricated pools that cost 120,000 to customers for 216,000
A. 186,811.20 and 29,118.80
83. Taster’s Choice sells natural supplements to customers with an unconditional right of return if
they are not satisfied….. B. credit to refund liability of 720 and credit to sales revenue of 2,880
84. Taster’s Choice sells natural supplements to customers with an unconditional right of return if
they are not satisfied…….C. credit to estimated inventory returns for 120
85. To address inconsistencies and weaknesses, a comprehensive revenue recognition model was
developed entitled the Revenue from contracts with customers
86. The converged standard on revenue recognition recognizes and measures revenue based on
changes in assets and liabilities
87. The first step in the process for revenue recognition is to identify the contract with the
customer
88. The second step in the process for revenue recognition is to identify the separate performance
obligations in the contract
89. The third step in the process for revenue recognition is to determine the transaction price
INSTALLMENT SALES | DAYAG
90. The fourth step in the process for revenue recognition is to allocate transaction price to the
separate performance obligations
91. The last step in the process for revenue recognition is to recognize revenue when each
performance obligation is satisfied
92. Revenue from a contract with a customer cannot be recognized until a contract exists
93. Signing of the contract by the two parties is not recorded until one or both parties perform
under the contract