CHAPTER 9 Installment Sales MULTIPLE CHOICE ANSWERS AND SOLUTIONS 9-1: d Deferred gross profit, Dec. 31 (before adjustment) Less: Deferred gross profit, Dec. 31 (after adjustment) Installment accounts receivable, Dec. 31 Gross profit rate Realized gross profit, 2013 OR Installment Sales (P1,050,000 25%) Less: Installment account receivable, Dec. 31 Collection Gross profit rate Realized gross profit, 2013
P1,050,000 P1,500,000 ____ 25%
__375,000 P 675,000 P4,200,000 __1,500,00 P2,700,000 ___X 25% P 675,000
9-2: a Deferred gross profit, before adjustment Deferred gross profit, end 2011 (6,000 X 35%) 2012 (61,500 X 33%) 2013 (195,000 X 30%) Realized gross profit, December 31, 2013 (Total – P107,235)
2011 P7,230
2012 P 60,750
2013 P 120,150
2,100 20,295 P5,130
P 40,455
___58,500 P 61,650
9-3: c Deferred gross profit balance, end Divide by Gross profit rate based on sales (25% 125%) Installment Accounts Receivable, end Collection Installment Sales
P 202,000 ____ 20% P1,010,000 ___440,000 P1,450,000
9-4: b Sales Cost of installment sales Deferred gross profit Less: Deferred gross profit, end Installment accounts receivables, 12/31 (1,000,000-400,000) Gross profit rate (300,000 1,000,000) Realized gross profit Operating expenses Operating income Interest and financing charges Net income
P1,000,000 __700,000 P 300,000
P 600,000 ___X 30%
__180,000 P 120,000 ___80,000 40,000 __100,000 P 140,000
9-5: a Market value of repossessed merchandise (before reconditioning cost) Less: unrecovered cost Unpaid balance (80,000-30,000) Less: Deferred gross profit (50,000X20%) Loss on repossession
P 30,000
P 50,000 ___10,000
__40,000 (P 10,000)
9-6: a Installment sales Less: collection on installment sales Installment account receivables, 12/31/08 Gross profit rate (500,000 1,000,000) Deferred gross profit, 12/31/08
P1,000,000 __200,000 800,000 ___X 50% P 400,000
OR Deferred gross profit (1,000,000-500,000) Less: Realized Gross Profit (200,000 X 50%) Deferred gross profit, 12/31/13
P500,000 _100,000 P400,000
Fair value of repossessed merchandise Less: unrecovered cost Unpaid balance Less: Deferred gross profit (200,000 X 32.5%) Loss on repossession
P120,000
9-7: d
P 200,000 ___65,000
_135,000 (P 15,000)
9-8: b Realized gross profit: Collections: Downpayment Installment received (205,000-200,000) Total Gross Profit Rate (150,000 240,000) Realized gross profit Gain (loss) on repossession: Appraised value of repossessed merchandise Less: unrecovered cost unpaid balance less: deferred gross profit (200,000 X 62.5%) Gain on repossession
P 35,000 ___5,000 40,000 _X 62.5% P 25,000
P165,000 P 200,000 __125,000
__75,000 P 90,000
9-9: b Sch.1
Date Apr-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1
Collection
Applying to Interest
Applying to principal
125.00 115.00 104.80 __94.40 P439.20
750.00 500.00 510.00 520.20 ___530.60 P2,810.80
750 625 625 625 625
Gain (loss) on repossession: Market value of repossessed merchandise Less: unrecovered cost unpaid balance of principal (sch. 1) less: deferred gross profit (4,189 X 35%) Loss on repossession (rounded)
Balance of principal P7,000.00 6,250.00 5,750.00 5,240.00 4,719.80 4,189.00
P 1,875 P 4,189 __1,466
Realized gross profit: Collection applying to principal (sch. 1) Gross profit rate Realized gross profit 9-10: c
___2,723 (P 848)
P2,810.80 __X 35% P 983.78 Year of Sales 2012
Deferred gross profit (Sales X Gross Profit Rate) 2012 (P300,000 X 30%) 2013 (P450,000 X 40%) 2012: Accounts written-off (P25,000 X 30%) Realized gross profit (P100,000 X 30%)
2013
P 90,000 P 180,000 ( 7,500) ( 30,000)
2013:
Accounts written-off, 2012 (P75,000 X 30%) Accounts written-off, 2013 (P50,000 X 40%) Realized gross profit, 2012 (P50,000 X 30%) Realized gross profit, 2013 (P150,000 X 40%) Deferred gross profit, 12/31/08 (P75,000)
( 22,500) ( 60,000) ( 15,000) ________ P 15,000
( 60,000) P 60,000
9-11: a Deferred gross profit, 2012 (P1,050,000 - 735,000) Realized gross profit, 2012 (P150,000 X 30%) Deferred gross profit, 12/31/12 Realized gross profit, 2013 (P390,000-90,000) X 30% Deferred gross profit, 12/31/13
P 315,000 ( 45,000) 270,000 ( 90,000) P 180,000
9-12: a 2012 P 480,000 ( 252,000) ( 180,000) _______ P 48,000
Deferred gross profit (Sales - Cost of Installment Sales) Realized gross profit, 2012 (P630,000 X 40%) Realized gross profit, 2012 (P450,000 X 40%) Realized gross profit, 2013 (P900,000 X 30%) Deferred gross profit, 12/31/13 (P228,000)
2013 P450,000
( 270,000) P180,000
9-13: c Trade-in value Less: Actual value Estimated selling price Less: reconditioning cost normal gross profit (25,000 X 15%) Overallowance Realized gross profit: Collection: Downpayment Actual value of merchandise-Trade In Installment collected (5,000 X 3)
P 30,000 P 25,000 P 1,250 __3,750
___5,000
P 5,000 20,000 _15,000
Gross Profit Rate: Sales Overallowance Net Sales Cost of Installment Sales Gross Profit Gross Profit Rate (15,000 75,000) Realized Gross Profit
__20,000 P 10,000
P 40,000
P 85,000 ( 10,000) P 75,000 _60,000 P 15,000 ___X 20% P 8,000
9-14: c Collection excluding interest (P900,000-P300,000) Gross profit rate (P1,200,000 P3,600,000) Realized Gross Profit, December 31, 2013 Add Interests Total Revenue
P 600,000 X 33 1/3% 200,000 __300,000 P 500,000
9-15: a Wholesale value of repossessed merchandise Less: unrecovered cost Unpaid balance: Sales, 10/1/12 Collection, 2012 (6,000 2,000) Collection, 2013 (1,000 X 7) Deferred gross profit (9,000 X 25%) Loss on repossession 9-16: a
P
P 24,000 ( 8,000) ( 7,000)
P 9,000 __2,250
4,000
___6,750 (P 2,750)
Trade-in Value (P300 X 6) Less: Actual value Estimated selling price (P315 X 6) Less: Reconditioning cost (P25 X 6) Gross Profit (P1,890 X 10%) Over-allowance
P
1,800
P 1,890 P150 _189
___339
___1,551 P 249
9-17: a Deferred gross profit, before adjustment Deferred gross profit, end 2012: P32,500 X (30% 130%) 2013: P180,000 X (33 1/3% 133 1/3%) Realized gross profit on installment sales
P 76,000 P 7,500 _45,000
__52,500 P 23,500
9-18: d Unpaid balance (P27,000 - P16,000) Multiply by gross profit rate (P734,400 P2,160,000) Deferred gross profit to be cancelled on repossession
P 11,000 ___X 34% P 3,740
Collection: 2012 Downpayment 2013 Installment collection Interest Total
P 600,000 600,000 __540,000 P1,740,000
Cost to be recovered
P4,000,000
9-19: b
Since cost is not yet fully recovered, then no gross profit is to be recognized in 2013. 9-20: d Regular Sales Cost of regular sales Gross profit on regular sales Add: Realized gross profit on installment sales 2012 (25,000 X 50%) 2013 (62,500 X 55%) Total realized gross profit Operating expenses Net income, 12/31/13 9-21: a
Installment sales – 2012 Collections: Down payment (20% x 785,000) Installment (40% x 628,000) Installment accounts receivable 2012, 12/31/07 Gross profit rate on sales Deferred gross profit- 2012, 12/31/12
P 187,500 __112,500 P 75,000 P12,500 _34,375
__46,875 121,875 ___31,250 P 90,625
P785,000 P157,000 251,200 408,200 376,800 35/135 P 97,689
9-22: a Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Installment sales (1,093,750 x 240%) Installment accounts receivable-12/31/13 Collections Gross profit on rate on sales
P1,575,000 1,050,000 525,000 2,625,000 1,575,000 1,050,000 140/240
612,500
Total realized gross profit Operating expenses (1,137,500 x 70%) Net income
1,137,500 796,250 P 341,250
Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Collections excluding Interest (312,000 – 24,000) Gross profit rate (270,000/900,000) Total realized gross profit Loss on repossession Fair value of repossessed merchandise Less: Unrecovered cost (100,000 x 70%) Total realized GP after loss on repossession Less: Operating expenses Installment accounts written-off (44,000 x .70) Net operating income Interest income Net income
P375,000 215,000 160,000
9-23: a
288,000 30%
86,400 246,400
54,000 70,000
( 16,000) 230,400
72,000 30,800
102,800 127,600 24,000 P151,600
SOLUTIONS TO PROBLEMS
Problem 9 – 1 Journal Entries: Installment A/R–2011........................... Installment A/R–2012 Installment A/R–2013........................... Installment Sales ...........................
2011 104,000 – – 104,000
2012 – 116,000 – 116,000
2013 – – 121,000 121,000
Cost of Installment Sales ...................... Inventory.......................................
64,480 64,480
68,440 68,440
73,810 73,810
Cash ...................................................... Installment A/R–2011 Installment A/R–2012................... Installment A/R–2013................... Interest Revenue ...........................
66,980 57,200 – 9,780
125,520 29,120 71,920 _ 24,480
145,460 15,000 26,680 76,230 27,550
Installment Sales................................... Cost of Installment Sales .............. Deferred Gross Profit–2011 .......... Deferred Gross Profit–2012 .......... Deferred Gross Profit–2013 ..........
104,000 64,480 39,520 – –
116,000 68,440 – 47,560 –
121,000 73,810 – – 47,190
Deferred Gross Profit–2011.................. Deferred Gross Profit–2012.................. Deferred Gross Profit–2013.................. Realized Gross Profit .................... Computations: 2011: P57,200 X .38
21,736 – – 21,736
=
P21,736
2012:
P29,120 X .38 P71,920 X .41 Total RGP
= =
P11,066 29,987 P40,553
2013:
P15,000 X .38 P26,680 X .41
= =
P 5,700 10,939
11,066 29,487 – 40,553
5,700 10,939 29,730 46,369
P76,230 X .39 Total RGP
2012:
2013:
=
29,730 P46,369
Problem 9 – 2 Inventory ........................................................................................................... 45,200 Cash........................................................................................................... Notes Receivable 2012 (P32,000 + P62,000 + 3,600)....................................... 97,600 Unearned Interest Revenue (P7,167 + P3,600).......................................... Installment Sales........................................................................................ Cost of Installment Sales (P45,200 – P2,000 inventory increase) ..................... 43,200 Inventory ................................................................................................... Cash..... ............................................................................................................. 35,600 Notes Receivable 2012 .............................................................................. Unearned Interest Revenue 2012....................................................................... 3,600 Interest Revenue ........................................................................................ Installment Sales ............................................................................................... 86,833 Cost of Installment Sales ........................................................................... Deferred Gross Profit on Installment Sales–2012...................................... Deferred Gross Profit on Installment Sales–2012 ............................................. 16,080* Realized Gross Profit on Installment Sales................................................ *Gross profit percentage: 50.25% (P43,633 P86,833) .5025 x 32,000 = P16,080 Inventory ........................................................................................................... 52,020 Cash........................................................................................................... Notes Receivable–2013 ..................................................................................... 89,5001 Unearned Interest Revenue........................................................................ Installment Sales........................................................................................ 160,000 + (P50,000 + P5,500) – P26,000* = 89,500 *2012 Notes receivable collected in 2013 2Interest revenue from 2012 notes: P7,167 – P5,579 = P1,588 Interest revenue from 2013 notes: P5,500 – P1,588 = P3,912 Discount on notes receivable at end of 2013 ..................................................... P 8,043 Interest revenue from 2013 notes (see above) ................................................... 3,912 Total discount at time of sale............................................................................. P11,955 Cost of Installment Sales (P52,020 – P8,000) ................................................... 44,020 Inventory ................................................................................................... Cash..... ............................................................................................................. 55,500 Notes Receivable–2012 (P62,000 – P36,000) ........................................... Notes Receivable–2013 ............................................................................. * P89,500 – P60,000 = P29,500 Discount on Notes Receivable–2012................................................................. 1,588 Discount on Notes Receivable–2013................................................................. 3,912 Interest Revenue ........................................................................................ Installment Sales ............................................................................................... 77,545 Cost of Installment Sales ........................................................................... Deferred Gross Profit on Installment Sales–2013...................................... Deferred Gross Profit on Installment Sales–2012 (P26,000 – P1,538 = P24,412; P24,412 x .5025) .............................................................. 12,267 Deferred Gross Profit on Installment Sales–2013 ............................................. 11,062* Realized Gross Profit on Installment Sales................................................ profit percentage: 43.23% (P33,525 ¸ P77,545) .4323 x (P29,500 – P3,912) = P11,062
1.
2011:
Gross profit rate
=
2012:
Gross profit rate
=
Deferred gross profit, 1/1 ––––––––––––––––––––– Install. contracts rec'l, 1/1 Deferred gross profit, 1/1 –––––––––––––––––––––
=
=
P24,000 ––––––– P60,000 P24,000 –––––––
=
40%
=
42%
45,200 10,767 86,833 43,200 35,600 3,600 43,200 43,633 16,080
52,020 11,9552 77,545
44,020 26,000 29,500*
5,500 44,020 33,525
23,329
Install. contracts rec'l, 1/1
2013: 2.
Gross profit rate
Gross profit =––––––––––––– = Installment sales
P140,000 P86,000 ––––––––––= P200,000
Journal Entries: Accounts Receivable ................................................................................................. Sales .... ............................................................................................................. Installment Contracts Receivable – 2013 .................................................................. Installment Sales ............................................................................................... Cost of Installment Sales........................................................................................... Shipments on Installment Sales......................................................................... Purchases..... ............................................................................................................. Cash..... ............................................................................................................. Selling Expenses ....................................................................................................... Cash..... ............................................................................................................. Cash....... ..... ............................................................................................................. Accounts Receivable ......................................................................................... Installment Contracts Receivable – 2011 .......................................................... Installment Contracts Receivable – 2012 .......................................................... Installment Contracts Receivable – 2013 .......................................................... Adjusting Entries: Installment Sales ....................................................................................................... Cost of Installment Sales ................................................................................... Deferred Gross Profit on Installment sales – 2013 ............................................ Deferred Gross Profit – 2011 (P40,000 x 40%)......................................................... Deferred Gross Profit – 2012 (P80,000 x 42%)......................................................... Deferred Gross Profit – 2013 (P110,000 x 43%)....................................................... Realized Gross Profit......................................................................................... Doubtful Accounts Expense (1/4 x 1% x P600,000) ................................................. Allowance for Doubtful Accounts..................................................................... Closing Entries: Sales ...... ..... ............................................................................................................. Merchandise Inventory, December 31....................................................................... Shipments on Installment Sales................................................................................. Merchandise Inventory, January 1..................................................................... Purchases........................................................................................................... Selling Expenses ............................................................................................... Doubtful Accounts Expense .............................................................................. Income Summary .............................................................................................. Realized Gross profit................................................................................................. Income Summary .............................................................................................. Income Summary ...................................................................................................... Retained Earnings .............................................................................................
3.
43%
600,000 600,000 200,000 200,000 114,000 114,000 476,000 476,000 210,000 210,000 790,000 560,000 40,000 80,000 110,000
200,000 114,000 86,000 16,000 33,600 47,300 96,900 1,500 1,500
600,000 260,000 114,000 240,000 476,000 210,000 1,500 46,500 96,900 96,900 143,400 143,400
Good Buy Mart Income Statement Year Ended December 31, 2013 Sales ...... ..... ............................................................................................................. Cost of sales: Merchandise inventory, January 1..................................................................... Purchases........................................................................................................... Cost of goods available for sale......................................................................... Less Shipments on installment sales.................................................................. Cost of goods available for regular sales ........................................................... Less Merchandise inventory, December 31....................................................... Gross profit on regular sales...................................................................................... Add Realized gross profit on installment sales (Schedule 1)..................................... Total realized gross profit..........................................................................................
P600,000 P240,000 476,000 716,000 114,000 602,000 260,000
342,000 258,000 96,900 354,900
Operating expenses: Selling expenses ................................................................................................ Doubtful accounts expense................................................................................ Net income .............................................................................................................
210,000 1,500
211,500 P143,400
Schedule 1
Collections .............................................. Multiply by Gross profit rate...................... Realized gross profit................................... 4.
Years of Installment Sales 2012 2013 P80,000 P110,000 42% 43% P33,600 P 47,300
2011 P40,000 40% P16,000
Good Buy Mart Balance Sheet December 31, 2013 A s s e t s Cash....... ..... ............................................................................................................. Merchandise inventory.............................................................................................. Accounts receivable .................................................................................................. Allowance for doubtful accounts............................................................................... Installment contracts receivable – 2011 .................................................................... Installment contracts receivable – 2012 .................................................................... Installment contracts receivable – 2013 .................................................................... Other assets ............................................................................................................. Total Assets ....................................................................................................... Liabilities and Equity Liabilities: Accounts payable .............................................................................................. Deferred gross profit on installment sales – 2011 ............................................. Deferred gross profit on installment sales – 2012 ............................................. Deferred gross profit on installment sales – 2013 ............................................. Total Liabilities ................................................................................................. Equity: Capital stock...................................................................................................... Retained earnings .............................................................................................. Total Liabilities and Equity ...............................................................................
Total
P 96,900
P144,000 260,000 P 62,000 3,500
58,500 20,000 60,000 90,000
200,000 P832,500
P 60,000 8,000 25,200 38,700 131,900 P406,000 294,600
700,600 P832,500
Problem 9 – 4
1.
2.
2012: GP rate
=
Deferred gross profit, 1/1 ––––––––––––––––––––– Install. contracts rec'l, 1/1
2013: GP rate
=
Gross profit –––––––––––––– Installment sales
= =
=
P21,600 + P1,200 –––––––––––––––– P24,000 + P52,000 P150,000 – P97,500 –––––––––––––––– P150,000
Installment Sales ....................................................................................................... Cost of Installment Sales ................................................................................... Deferred Gross Profit, 2013 .............................................................................. Deferred Gross profit, 2012....................................................................................... Deferred Gross Profit, 2013 ...................................................................................... Realized Gross Profit.........................................................................................
= =
=
P22,800 ––––––– P76,000
=
30%
P52,500 –––––––– P150,000
=
35%
150,000 97,500 52,500 14,400 25,900 40,300
Computation:
Installment contracts receivable, 1/1 ............................ Less Installment contracts receivable, 12/31 ................ Total credit for the period............................................. Less Credit representing repossession .......................... Credit representing collections .....................................
2012 Sales P76,000 24,000 52,000 4,000 P48,000
2013 Sales P150,000 76,000 74,000 – P 74,000
Total
Multiply by Gross profit rate ........................................ Realized gross profit.....................................................
30% P14,400
35% P 25,900
Sales ...... ..... ............................................................................................................. Realized Gross Profit ................................................................................................ Loss on Repossession........................................................................................ Cost of Sales...................................................................................................... Selling and Administrative Expenses ................................................................ Income Summary .............................................................................................. Income Summary ...................................................................................................... Retained Earnings ............................................................................................. 3.
P 40,300
212,000 40,300 400 165,000 66,000 20,900 20,900 20,900
Apple Company Income Statement Year Ended December 31, 2013 Sales ...... ..... ............................................................................................................. .................... Cost of sales ............................................................................................................. .................... Gross profit on regular sales...................................................................................... .................... Add Realized gross profit on installment sales (Schedule 1)..................................... .................... Total realized gross profit.......................................................................................... .................... Less Loss on repossession......................................................................................... .................... Total realized gross profit after adjustment for loss on repossession ........................ .................... Selling and administrative expenses.......................................................................... .................... Net income .. ............................................................................................................. ....................
P212,000 165,000 47,000 40,300 87,300 400 86,900 66,000 P 20,900
Problem 9 – 4 Schedule 1 2012 Sales P76 000 24,000 52,000 4,000 P48,000 30% P14,400
Installment contracts receivable, 1/1 .......................................... Less Installment contracts receivable, 12/31 .............................. Total credit for the period........................................................... Less Credit representing repossession........................................ Credit representing collections ................................................... Multiply by Gross profit rate...................................................... Realized gross profit...................................................................
2013 Sales P150,000 76,000 74,000 – P 74,000 35% P 25,900
Total
P40,300
Problem 9 – 5 1.
Cost of Installment Sales........................................................................................... Shipments on Installment Sales.........................................................................
54,400
Installment Sales ....................................................................................................... Cost of Installment Sales ................................................................................... Deferred Gross Profit, 2013 .............................................................................. Gross profit = P25,600 P80,000 =32% Deferred Gross Profit, 2012 ...................................................................................... Deferred Gross Profit, 2013 ...................................................................................... Realized Gross Profit.........................................................................................
80,000
54,400
54,400 25,600 14,000 8,000 22,000
Computation:
Installment contracts receivable, 1/1 ............................ Less Installment contracts receivable, 12/31 ................ Total credit for the period............................................. Less Credit representing repossession .......................... Credit representing collections .....................................
2012 Sales P82,000 _ 36,000 46,000 __6,000 P40,000
2013 Sales P 80,000 _55,000 25,000 ___ – P 25,000
Total
Multiply by Gross profit rate ........................................ Realized gross profit.....................................................
*2012 Gross profit rate=
2.
DGP, 1/1 ––––––– ICR, 1/1
=
__35%* P14,000
___32% P 8,000
P 22,000
P28,700 (26,600 + 2,100) ––––––– = 35% P82,000 (36,000 + 40,000 + 6,000)
Sales ...... ..... ............................................................................................................. Merchandise Inventory, December 31....................................................................... Shipments on Installment Sales................................................................................. Merchandise Inventory, January 1..................................................................... Purchases........................................................................................................... Repossessed Merchandise ................................................................................. Loss on Repossession........................................................................................ Operating Expenses........................................................................................... Income Summary ..............................................................................................
200,000 52,000 54,400
Realized Gross Profit ................................................................................................ Income Summary ..............................................................................................
22,000
Income Summary ...................................................................................................... Retained Earnings .............................................................................................
31,500
60,000 180,000 3,000 900 53,000 9,500
22,000
31,500
PPG Discount Center, Inc. Income Statement Year Ended December 31, 2013
Sales ...... ..... .............................................................. Cost of sales: Inventory, January 1 ........................................... Purchases............................................................ Repossessed merchandise................................... Cost of goods available for sale.......................... Less Shipments on installment sales................... Cost of goods available for regular sales ............ Less Inventory, December 31............................. Gross profit .............................................................. Less Deferred gross profit on installment sales, 2013 .......................................................... Realized gross profit, 2013......................................... Add Realized gross profit on 2012 installment sales ................................................. Total realized gross profit........................................... Less Loss on repossession.......................................... Total realized gross profit after adjustment for loss on repossession...................................... Operating expenses .................................................... Net income ..............................................................
P 60,000 180,000 __3,000 243,000 _54,400 188,600 _52,000
Regular P200,000
Installment P80,000
Total P280,000
_136,600 P 63,400
54,400 25,600
191,000 89,000
17,600 8,000
17,600 71,400
14,000 22,000 ___900
14,000 85,400 __900
P21,100
84,500 _53,000 P31,500
Problem 9 – 6 1.
London Products Schedule of Cost of Goods Sold Year Ended December 31, 2013 Merchandise inventory, January 1............................................................................. .................... Purchases ............................................................................................................. .................... Freight-in ............................................................................................................. .................... Repossessed merchandise.......................................................................................... .................... Cost of goods available for sale................................................................................. ....................
P 48,000 238,000 12,000 14,000 312,000
Less Merchandise inventory, December 31............................................................... .................... Cost of goods sold..................................................................................................... .................... 2.
London Products Schedule of Allocation of Cost of Goods Sold Year Ended December 31, 2013
Amount Cash sales .................... P60,000 Charge sales ....................120,000 Installment sales ............... 300,000
3.
52,000 P260,000
On Cash Price Basis P 60,000 100,000 240,000 P 400,000
120% 125%
Ratio to Total 60/400 100/400 240/400
Allocated Cost P 39,000 65,000 156,000 P260,000
London Products Income Statement Year Ended December 31, 2013
Sales ...... ..... ........................................... Cost of goods sold................................... Gross profit ........................................... Less Unrealized gross profit: On installment contracts receivable,12/31 (192,000 x 144/300) Realized gross profit................................ Add Realized gross profit on prior years' sales (Schedule 1): 2011......................................... 19,200 2012......................................... 14,700 Total realized gross profit........................ Less Loss on repossession (Schedule 2) .................................... Total realized gross profit after adjustment for loss on repossession..................................... Less Operating expenses ......................... Net income ...........................................
Installment Total Sales P480,000 P 300,000 260,000 156,000 P 220,000 P 144,000
92,160 127,840
92,160 51,840
33,900 161,740
33,900 85,740
10,200
10,200
151,540 93,000 P 58,540
P 75,540
Charge Sales P120,000 65,000 P 55,000
Cash Sales P 60,000 39,000 P 21,000
Schedule 1 2011 Installment contracts receivable, January 1: 2011 – P32,000 40%..................................................................................... 2012 – P56,000 35%..................................................................................... Less Installment contracts receivable, December 31................................................. Total credits ............................................................................................................. Less Credit representing repossession....................................................................... Total collections ........................................................................................................ Multiply by Gross profit rate..................................................................................... Realized gross profit..................................................................................................
2012
P80,000 _22,000 58,000 _10,000 P48,000 ___40% P19,200
P160,000 __90,000 70,000 28,000 P 42,000 ___35% P 14,700
2011 P 2,000
2012 P12,000
Total P 14,000
10,000
28,000
38,000
Schedule 2 Fair market value of repossessed merchandise..................... Less Unrecovered cost: Unpaid balance............................................................. Less Unrealized profit – 2011 – P10,000 x 40% .................................... 2012 – P28,000 x 35% .................................... Balances ........................................................................ Gain (loss) on repossession ..................................................
4,000 __6,000 P(4,000)
9,800 18,200 P( 6,200)
13,800 __24,200 P( 10,200)
Problem 9 – 7 1.
2012 2012 2012 installment sales (P400,000 x 42%*)........................................................ 2013: 2012 installment sales (P173,000 x 42%).......................................................... 2013 installment sales (P560,000 x 38.5%*)..................................................... Deferred gross profit .................................................................................................
2013
P 168,000
________ P 168,000
P 72,660 __215,600 P 288,260
*Computation of Gross profit percentages (see next page) 2012 Installment sales ........................................................................................................ P2,210,000 Less Trade-in allowances (P226,000 – P158,000) .................................................... _______– Adjusted installment sales ......................................................................................... 2,210,000 Cost of sales: Inventories, January 1 (new) ............................................................................. – Purchases (new)................................................................................................. 1,701,800 Repossessed merchandise.................................................................................. – Cost of goods available for sale......................................................................... 1,701,800 Less: Inventories, December 31 – New merchandise ...................................................................................... Repossessed merchandise.......................................................................... Total .......................................................................................................... Cost of sales ...................................................................................................... Gross profit ............................................................................................................. Gross profit percentages............................................................................................ *2012 : P195,000 x 20% =P39,000 2013 : P110,000 x 40% =_44,000 P83,000 Uncollectible installment contracts expense, per books ................... Correct Uncollectible installment contracts expense: Fair market value of repossessed merchandise – 2012 sales (P195,000 x 20%) ........................................... 2013 sales (P110,000 x 40%) ........................................... Unrecovered cost – 2012 sales [P105,000 x (100% – 42%)] ........................... 2013 sales [P82,000 x (100% – 38.5%)] .......................... Adjustment to Uncollectible installment contracts expense .............
2013 P3,100,000 ____68,000 _3,032,000 420,000 1,767,000 _83,000* 2,270,000
420,000 _______– 420,000 1,281,800 P 928,200
358,820 ____46,500 405,320 _1,864,680 P1,167,320
42%
38.5%
P 99,000
P 39,000 __44,000
P 83,000
60,900 __50,430
__111,330
__28,330 P 70,670
Installment Sales P3,032,000 1,864,680 1,167,320
Total Sales P3,237,000 _2,022,680 1,214,320
__247,170 920,150
__247,170 967,150
___51,240 971,390 ___28,330 P 943,060
___51,240 1,018,390 ___28,330 990,060 __592,960 P 397,100
Fortune Sales Corporation Income Statement Year Ended December 31, 2013 Cash Sales Sales .................................................................................... P205,000 Cost of sales .................................................................................... _158,000_ Gross profit .................................................................................... P 47,000 Less Unrealized gross profit on 2010 installment sales (Schedule 1) ..................................................................... Realized gross profit on 2013 sales .................................................. Add Realized gross profit on 2012 installment sales (Schedule 2) ..................................................................... Total realized gross profit................................................................. Less Uncollectible installment contracts expense ............................ Total realized gross profit after adjustment ...................................... Operating expenses .......................................................................... Net income ....................................................................................
Schedule 1 Installment contracts receivable 2013, December 31 ........................... ............... Installment contracts receivable 2013 defaulted................................... ............... Total ...... ..... ........................................................................................ ............... Multiply by 2013 gross profit percentage............................................. ............... Unrealized gross profit on 2013 installment sales ................................ ...............
P 560,000 ___82,000 P 642,000 ___38.5% P 247,170
Schedule 2 Installment contracts receivable 2012, January 1 ...................................................... Less Installment contracts receivable 2012, December 31 ........................................ Total credits for the period ........................................................................................ Less Installment contracts receivable 2012 defaulted ............................................... Total collections ........................................................................................................ Multiply by 2012 gross profit percentage.................................................................. Realized gross profit on 2012 installment sales......................................................... 1.
P 400,000 __173,000 227,000 __105,000 P 122,000 _____42% P 51,240
Apportionment of cost (P600,000) to Lots 1, 2 and 3: Lot 1 : 2/3 x P360,000 ................................................ Lot 2 : 2/3 x P240,000 ................................................ Lot 3 : 1/3 ................................................................... 1/3 x P240,000...................................................... Total cost......................................................................
P 240,000 160,000 P120,000 __80,000
Journal Entries for 2012 March 31 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 2)...................................................................................... Lot 2 ........................................................................................................ Deferred gain on Sale of Land...................................................................... June 30 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 3)...................................................................................... Lot 3 .... ........................................................................................................ Deferred Gain on Sale of Land..................................................................... Cash....... ..... ........................................................................................................ Interest Income (P364,000 x 12% x 3/12) .................................................... Notes Receivable (Lot 2).............................................................................. September 30 Cash....... ..... ........................................................................................................ Interest Income (P358,920 x 12% x 3/12) .................................................... Notes Receivable (Lot 2).............................................................................. October 31 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 1)...................................................................................... Lot 1 .... ........................................................................................................ Deferred Gain on Sale of Land..................................................................... December 31 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 1).............................................................................. Notes Receivable (Lot 2).............................................................................. Notes Receivable (Lot 3).............................................................................. Interest Income.............................................................................................
__200,000 P 600,000
36,000.00 364,000.00 160,000.00 240,000.00 120,000.00 720,000.00 200,000.00 640,000.00 16,000.00 10,920.00 5,080.00 16,000.00 10,767.60 5,232.40 72,000.00 288,000.00 240,000.00 120,000.00 78,000.00 6,240.00 5,389.37 6,800.00 59,570.63
Computation: Collections ...................................................
Total P78,000.00
Lot 1 P12,000.00
Lot 2 P16,000.00
Lot 3 P50,000.00
Apply to interest: Lot 1 – P288,000.00 x 12% x 2/12.......... 5,760.00 Lot 2 – P353,687.60 x 12% x 3/12.......... 59,570.63 10,610.63 Lot 3 – P720,000.00 x 12% x 6/12..........______________________________________________ _43,200.00 Apply to principal ........................................ P18,429.37 P 6,240.00 P 5,389.37 P 6,800.00 2.
Deferred Gain on Sale of Land (Lot 1)...................................................................... Deferred Gain on Sale of Land (Lot 2)...................................................................... Deferred Gain on Sale of Land (Lot 3)...................................................................... Realized Gain on Sale of Land ..........................................................................
26,080.00 31,021.06 96,368.00 153,469.06
Computation: Lot 1 P78,240.00
Collections applied to principal ................... Multiply by Gross profit rates: Lot 1 – P120,000 P360,000................ Lot 2 – P240,000 P400,000................ Lot 3 – P640,000 P840,000................ Realized gain................................................ 3.
Lot 2 P51,701.77
Lot 3 P126,800.00
60% _________ P31,021.06
_____76% P96,368.00
33.33% _________ P26,080.00
Lot 3 (80% x P200,000) ............................................................................................ Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368).................................. Loss on Repossession................................................................................................ Notes Receivable (Lot 3) (P720,000 – P6,800).................................................
160,000.00 543,632.00 9,568.00 713,200.00
Problem 9 – 9 Galaxy Investment Company Income Statement Year Ended December 31, 2013 Sales Schedule 1) ............................................................................................................. Cost of sales (Schedule 2).................................................................................................... Gross profit ...... ..... ............................................................................................................. Less Sales commissions....................................................................................................... Gross profit ...... ..... ............................................................................................................. Less Deferred gross profit Installment Notes Balance P5,370,000 ––––––––––––––––––––– =–––––––––– =67% x P6,227,000 Installment Sales P8,060,000 Realized gross profit ............................................................................................................ Expenses: Advertising and promotion........................................................................................ Sales manager's salary............................................................................................... General office expenses (1/4 x P236,000)................................................................. Net profit ....... ..... .............................................................................................................
P 8,060,000 1,612,000 6,448,000 221,000 6,227,000
4,172,090 2,054,910 P 730,000 120,000 59,000
909,000 P 1,145,910
Schedule 1
A lots : 26 @ P150,000......................................................... B lots : 32 @ P100,000 ......................................................... C lots : 12 @ P80,000 ........................................................... ..............................................................
Total Sales Price P3,900,000 3,200,000 960,000 P8,060,000
Cash Received P1,650,000 800,000 240,000 P2,690,000
Installment Notes Balance P 2,250,000 2,400,000 720,000 P 5,370,000
Unit Price P150,000 100,000 80,000
Total Sales Value P12,000,000 10,000,000 9,600,000 P31,600,000
Schedule 2 Class A............ ..... .............................................................. B............ ..... .............................................................. C............ ..... .............................................................. Total .... ..............................................................
Number of Lots 80 100 120 300
Cost of tract: Cost of land ............................................................................................................. Legal fees, etc............................................................................................................ Grading contract........................................................................................................ Water and sewerage system contract......................................................................... Paving contract.......................................................................................................... General office expenses (3/4 x P236,000)................................................................. Total ...... ..... .............................................................................................................
P 4,800,000 600,000 225,000 184,900 266,300 177,000 P 6,253,200
P6,253,200 Cost rate : –––––––––––– = 20% (rounded off) P31,600,000 Cost of sales (P8,060,000 x 20%) ...................................................................................... P 1,612,000 Problem 9 – 10 Rizal Company Income Statement Year Ended December 31, 2013 Installment sales [(P14,300 x 7) + (P725 x 4)] .................................................................... Cost of goods sold on installment (schedule 1).................................................................... Gross profit ...... ..... ............................................................................................................. Less Deferred gross profit on 19x8 sales (P103,000 – P21,000 = P82,000 x 23%*) ................................................................ Realized gross profit on 2013 sales...................................................................................... Add Realized gross profit on prior years' sales – 2011 : P60,000 x 33-1/3* .......................................................................................... 2012 : P115,000 x 35%* ........................................................................................... Total realized gross profit .................................................................................................... Less Loss on repossession (Schedule 4)............................................................................... Total realized gross profit after adjustment.......................................................................... General and administrative expenses ................................................................................... Net income (loss) .............................................................................................................
P103,000 __79,310 23,690 __18,860 4,830 P20,000 _40,250
__60,250 65,080 __33,100 31,980 __50,000 P(18,020)
*See Schedule 3 Schedule 1 Purchases (P10,500 x 8)....................................................................................................... Repossessed merchandise .................................................................................................... Cost of goods available for sale ........................................................................................... Less Inventory, December 31 – Number of units on hand ........................................................................................... Multiply by average unit cost (Schedule 2) ............................................................... Cost of goods sold on installment ........................................................................................
P 84,000 ___2,520 86,520 1 P 7,210
___7,210 P 79,310
Schedule 2 Purchases during 2013 (P10,500 x 8) .................................................................................. Add Repossessed merchandise ............................................................................................ Total .............. ..... ............................................................................................................. divide by Number of units (8 + 4) ....................................................................................... Average unit cost .............................................................................................................
P 84,000 ___2,520 P 86,520 _____12 P 7,210
Schedule 3 Sales – 2011 : 2012 : 2013 :
................................................................... P15,000 x 10.................................................... P14,000 x 20.................................................... P14,300 x 7......................................................
2011
2012
2013
P150,000 P280,000 100,100
P725 x 4........................................................... ...................................................................
_______ 150,000
_______ 280,000
__2,900 103,000
Cost of goods sold: Inventory, January 1 ........................................................ Purchases ................................................................... Repossessed merchandise................................................ Cost of goods available for sale....................................... Less Inventory, December 31.......................................... Cost of goods sold........................................................... Gross profit ...... ..... ................................................................... Gross profit rates.... ...................................................................
– 120,000 _____– 120,000 _20,000 100,000 P 50,000 33-1/3%
20,000 162,000 _____– 182,000 _____– 182,000 P 98,000 35%
– 84,000 _2,520 86,520 _7,210 79,310 P23,690 23%
Sales
Schedule 4 Fair market value of repossessed merchandise .................................................................... Less Unrecovered cost – Unpaid balance: Original sales amount (P14,000 x 4) ................................................................. Collections prior to repossession....................................................................... Total .... ............................................................................................................. Less Unrealized profit (P54,800 x 35%) ................................................................... Loss on repossession............................................................................................................
P 2,520
P 56,000 __1,200 54,800 _19,180
_35,620 P33,100
