PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES NAME: __________________________ ________________ DATE: _________________ 1. Partial trial balance of Andy Appliance Corporation as of the end of the fiscal year September 30,2013 follows: Debit
Deferred gross profit – 2012 Installment contract receivable – 2012 Installment contract receivable – 2013 Installment sales Inventory, September 30, 2012 Loss on repossessions Purchases Repossessions Sales
Credit
P50,000 P12,500 150,000 375,000 62,500 3,750 435,000 2,500 312,000
The post-closing trial balance on September 30, 2012 shows the following balances of certain accounts: Installment contract receivable – 2012 Deferred gross profit – 2012
P100,000 50,000
The gross profit rate on regular sales during the year was 30%. The inventory of new and repossessed merchandise on September 30, 2013 amounted to P75,000. Unpaid balance on repossessed merchandise sale of 2012 is P6,250. The total realized gross profit on December 31, 2013 is: a. P141,875 b. P101,250 c. P40,625 2. The Lhaban Appliance Company following data are available:
reports
gross
profit
d. P140,875
on
the
2011
Installment sales Cost of goods – installment sales Gross profit Collections: 2011 installment contracts 2012 installment contracts 2013 installment contracts
installment
basis.
2012
2013
P240,000 180,000 60,000
P250,000 181,250 68,750
P300,000 216,000 84,000
P 45,000
P 75,000 47,500
P 72,500 80,000 62,500
P 12,000
P 15,000
6,500
6,000
Defaults: Unpaid balance of 2011 installment contracts Value assigned to repossessed merchandise Unpaid balance of 2012 installment contracts Value assigned to repossessed merchandise
The
16,000 9,000
The total realized gross profit after loss on repossession for 2013 is: a. P49,775 b. P57,625 c. P48,975 d. P56,625 3. Presented below is the unadjusted trial balance, as of December 31, 2013 of Molly Products Corporation: Cash Installment accounts receivable – 2012 Installment accounts receivable – 2013 Inventory, December 31, 2013 Other assets Trade accounts payable Unrealized gross profit – 2011 Unrealized gross profit – 2012
P 5,000 40,000 140,000 200,000 497,000 P50,000 10,000 86,000
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PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES Unrealized gross profit – 2013 Capital stock Retained earnings Repossession gain Operating expenses
100,000 600,000 80,000 6,000 _______ P932,000
50,000 P932,000
The cost of goods sold had been uniform over the years at 60% of sales, and the company adopts perpetual inventory procedures. On installment sales, the company charges installment accounts receivable and credits inventory and unrealized gross profit accounts. Repossessions of merchandise have been made during 2013 due to some customers’ failure
to pay maturing installments. The analysis of these transactions has been summarized as follows: Inventory
P7,500
Unrealized gross profit
– 2011 Unrealized gross profit – 2012
800 2,400
Installment accounts receivable
– 2011 Installment accounts receivable – 2012
P2,000 6,000
Repossession gain
2,700
The repossessed merchandise was unsold at December 31, 2013 and it was ascertained that these were booked, upon repossession, at their original cost. A fair valuation would be a sales price of P10,000 after reconditioning cost of P1,000 and a normal gross profit. The realized gross profit from 2013 sales and the gain (loss) on repossession on December 31, 2013 are: a. P44,000 and (P200) c. P56,000 and P300 b. P44,000 and P200 d. P56,000 and P200 4. The books of Paiyakan Company show the following account balances on December 31, 2013: Accounts receivable P313,750 Deferred gross profit (before adjustment) 38,000 Analysis of the accounts receivable reveals the following: Regular accounts P207,500 2012 installment accounts receivable 16,250 2013 installment accounts receivable 90,000 Sales on installment basis in 2012 were made at 30% above cost, and in 2013 at 33 1/3% above cost. Expenses paid relating to installment sales were P1,500. How much is the total comprehensive income on installment sales? a. P10,000 b. P10,250 c. P11,000 d. P11,500 5. Mango Company, which sells appliance started operations on January 10, 2013 operates on a calendar year basis, and uses the installment method of revenue recognition. The following data were taken from the 2012 and 2013 accounting records: Installment sales Gross profit rates based on cost Cash collections on 2012 sales Cash collections on 2013 sales
2012
2013
P480,000 25% 130,000
P620,000 20% 240,000 160,000
What is the amount of realized gross profit to be recognized on December 31, 2013? a. P124,500 b. P100,667 c. P 92,000 d. P74,667 6. The Brownout Inc., began operating at the start of the calendar year 2013 uses the installment method of accounting:
Page 2 of 7
PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES Installment sales Gross margin based on cost Inventory, Dec. 31, 2013 General and administrative expenses Accounts receivable, Dec. 31, 2013
P400,000 66 2/3% 80,000 40,000 320,000
The balance of the deferred gross profit account at December 31, 2013 should be: a. P192,000 b. P 96,000 c. P128,000 d. P 80,000 7. In its first year of operations, Guijo Company’s sales were as follows: Sales
Cash Charge Installment
Mark-up on Cost
Sales
25% 33 1/3% 50%
P250,000 400,000 600,000
The cost of goods sold for the year was P900,000. If collections on installments sales during the year amounted to P240,000, how much was the total gross profit realized at the year end? a. P 50,000 b. P 60,000 c. P 80,000 d. P230,000 8. Standard Sales Corporation accounts for sale on the installment basis. The balances of the control accounts for Installment Contracts Receivable at the beginning and end of 2013 were: Jan. 1, 2013
Installment contract receivable – 2011 Installment contract receivable – 2012 Installment contract receivable – 2013
Dec. 31, 2013
P 24,020 344,460 -
P
67,440 410,090
During 2013, the company repossessed a refrigerator which had been sold in 2012 for P5,400 and P3,200 had been collected prior to default. The company sales and cost of sales figures are summarized below:
Net Sales Cost of Sales
2011
2012
2013
P380,000 247,000
P432,000 285,120
P602,000 379,260
The resale price of the repossessed merchandise is P2,000 after reconditioning cost of P300 and a normal gross profit of 35%. The total realized gross repossession are: a. P172,892.50 and (P381) b. P172,892.50 and (P452)
profit
on
December
31,
2013
and
the
gain
(loss)
on
c. P142,500.00 and P452 d. P142,500.00 and P381
9. United Trading accounts for sales under the installment method. On January 1, 2013 its ledger accounts included the following balances: Installment receivable, 2011 Installment receivable, 2012 Deferred gross profit, 2011 Deferred gross profit, 2012
P 38,500 155,000 11,550 62,000
Installment sales in 2013 were made at a 42% gross profit rate. December 31, 2013 accounts balances before adjustment were as follows: Installment receivable, 2011 Installment receivable, 2012 Installment receivable, 2013 Deferred gross profit, 2011 Deferred gross profit, 2012 Deferred gross profit, 2013
P
0 42,000 100,500 11,550 62,000 78,810
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PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES The total realized gross profit on December 31, 2013? a. P90,350 b. P97,510 c. P98,910
d. P97,350
10. Tear Drops Corp. started operations on 1 January 2012 selling home appliances and furniture on installment basis. For 2012 and 2013 the following represented operational details. In Thousand Pesos
Installment sales Cost of installment sales Collections on installment sales 2012 2013
2012
2013
P1,200 720
P1,500 1,050
630 0
450 900
On January 7 2013, an installment sale account in 2012 defaulted and the merchandise with a market value of P15,000 was repossessed. The related installment receivable balance as of date of default and repossession was P24,000. The balance of the unrealized gross profit as of the end of 2013 was a. P218,400 b. P192,000 c. P360,000 d. P275,000 11. The following accounts appeared in the accounting records in Adidas Sales Company as of December 31, 2013: Installment accounts receivable – 2012 Installment accounts receivable – 2013 Inventory, December 31, 2012 Purchases
P15,000 200,000 70,000 555,000
Repossessions P 3,000 Installment sales 425,000 Regular sales 385,000 Deferred gross profit – 2012 54,000
Additional information:
Installment accounts receivable – 2012, January 1, 2013 Inventory of new and repossessed merchandise, December 31, 2013 Gross profit rate on regular sales
P120,000 95,000 30%
Repossession was made during the year, 2013. It was a 2012 sale and the corresponding uncollected balance at the time of repossession was P7,200. Compute (1) the total realized gross profit for 2013 and the (2) loss on repossession: a. (1)P129,510; and (2) P 960 c. (1)P245,000; and (2) P 960 b. (1)P129,510; and (2) P 1,464 d. (1)P 85,500; and (2) P1,464 12. Lacoste Corporation has been using the cash method of revenue recognition. All sales are made on account with notes receivable given by the customers. The income statement for 2013 presented the following data: Revenue – collection on principal Revenues – interest Cost of goods purchase (includes inventory of goods on hand of P2,000)
P32,000 3,600 45,200
The balances due on the notes on December 31 were as follows: Notes receivable P62,000 Unearned interest income 7,167 Assuming the use of the installment method of revenue realized gross profit on December 31, 2013? a. P16,080 b. P25,586 c. P18,060
recognition,
what
is
the
d. P43,633
13. The Bengal Furniture Company appropriately used the installment sales method in accounting for the following installment sale. During 2013 Bengal sold furniture to an individual for P3,000 at a gross profit of P1,200. On June 1, 2013, this installment account receivable had a balance of P2,200 and it was determined that no further collections would be made. Bengal therefore repossessed the merchandise. When reacquired, the merchandise was appraised as being worth only P1,000. In order to
Page 4 of 7
PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES improve its salability, Bengal incurred costs of P1000 for reconditioning. What should be the loss on repossessions attributable to this merchandise? a. P 220 b. P 320 c. P 880 d. P1,100 14. Cellphone, Inc, sells cellphone on an installment basis. For the year ended December 31, 2016, the following were reported: Cost of installment sales P1,050,000 Loss on repossessions 27,000 Fair value of repossessed merchandise 225,000 Account defaulted 360,000 Deferred gross profit, December 31 Adjusted 216,000 What is the collections during the year? a. P780,000 b. P420,000
c. P720,000
d. P1,429,091
15. Nikita Inc. sells automatic weapons costing P700,000 at a price P1,200,000. Division Corp. buys a dozen of automatic weapons on installment and trade in six of its old weapons at a trade-in value of P300,000 each. Nikita spends P25,000 to recondition the old guns and sells them for P315,000. Nikita expects a 10 percent gross profit from the sale of used guns. What is the over-allowance granted by Nikita on the trade-in transaction? a. P99,000 b. P234,000 c. P41,500 d. P249,000 16. Following data pertain installment basis:
to
Matiisin
Company
which
sells
2003
Installment sales Cost of sales
P390,000 237,900
the
appliances
on
2004
2005
P420,000 243,600
P480,000 288,000
2004
2005
P300,000 60,000
P320,000
the
From Sales Made In 2003
Installment accounts receivable January 1, 2005 December 31, 2005
P24,000
Repossession on defaulted accounts Were made during 2005, as follows: From Sales Made In 2004
Account balance Net resale value of repossessed merchandise
P 10,000 4,500
2005
P
5,000 3,500
The net gain (loss) on repossessions on defaulted sales of 2004 and 2005 was: a. P 500 b. P (800) c. P 800 d. P(1,300) 17. The following data were taken from the records of Sweet Serendipity Co. before the accounts are closed for the year ended December 31, 2015. The company uses the installment method of recognizing revenue and it sells goods exclusively on installment basis. For the year ended: Dec. 31,2013
Installment sales Cost of goods sold
? P300,000
Dec. 31, 2014
P500,000 ?
Dec. 31, 2015
P600,000 ?
Balances as of: Dec. 31, 2013
Installment AR, 2013 Installment AR, 2014 Installment AR, 2015 DGP, 2013 DGP, 2014 DGP, 2015
Dec. 31, 2014
P350,000
P125,000 307,500
P122,500
P 43,750 123,000
Dec. 31, 2015
P 35,000 140,000 490,000 P 43,750 120,000 210,000
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PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES
On January 2015, a customer defaulted and Sweet Serendipity repossessed the merchandise . The merchandise was assessed to have a cost of P4,200 after costs of reconditioning amounting to P800. The repossessed merchandise was purchased by the customer in 2014 and the said customer still owed the company a certain amount at the date of repossession. How much was the realized gross profit and loss on repossession in 2015? a. P134,000; P300 b. P134,000; P1,100 c. P137,000; P3,300 d.P137,000;P4,100 Numbers 18 and 19 using the following information:
The Labrador Sales Co. which began the appliance business on January 1, 2005 reports gross profit on the installment basis. The following information relative to the installment sales are available: 2005
Installment sales Cost of installment sales Gross profit Collections: 2005 installment contracts 2006 installment contracts 2007 installment contracts Defaults: Unpaid balance of 2005 installment contracts Value assigned to repossessed merchandise Unpaid balance of 2006 installment contracts Value assigned to repossessed merchandise
2006
2007
P360,000 270,000 P 90,000
P375,000 271,875 P103,125
P450,000 324,000 P126,000
P 67,500
P112,500 71,250
P108,750 120,000 93,750
P 18,750
P 22,500
9,750
9,000 24,000 13,500
18. How much is the realized gross profit from the collections during 2007? a. P80,625.50 b. P86,437.50 c. P88,687.50 d. P90,300.00 19. The loss on repossession during the year 2007 amounted to: a. P11,775 b. P12,225 c. P34,275
d. P46,500
20. Since there is no basis for estimating the degree of collectability, Astor Co. uses the installment method of revenue recognition for the following sales: Sales P900,000 P600,000 Collections from: 2008 sales 100,000 200,000 2009 sales 300,000 _ Accounts written off: 2008 sales 150,000 50,000 2009 sales 50,000 Gross profit percentage 40% 30% What amount should Astor report as deferred gross profit in its December 31, 2009 balance sheet for the 2008 and 2009 sales? a. P150,000 b. P160,000 c. P225,000 d. P250,000 Numbers 21 through 23 using the following information:
Abenson Trading Co. sells household furniture both in cash and in installment basis. For each installment sale, a sale contract is made whereby the following terms are stated: a. A down payment of 25% of the installment price is required and the balance payable in 15 equal monthly installment. b. Interest of 1% per month is charged on the unpaid cash sale price equivalent at each installment. c. The price on installment sales in 110% of the cash sales price.
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PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES For accounting purposes, installment sales are recorded at contract price. Any unpaid balances on defaulted contracts are being to uncollectible accounts expense. Sales of defaulted merchandise were credited to uncollectible accounts expense. Interest are recognized in the period earned. For its year of operations ending December 31, 2009, the books of the company show the following: Cash sales Installment sales Merchandise inventory, January 1 Purchases Merchandise inventory, December 31 Cash collections on installment contracts: Down payment Installment payments (include interest of P27,758.52). Average 6 monthly installment on all contracts except on defaulted contracts.
P378,000 794,970 174,180 627,891 108,630 198,750
238,023
A contract amounting to P3,300 was defaulted after paying three (3) monthly installments. 21. The gross profit rate based on total sales at cash price equivalent is: a. 33.75% b. 36.34% c. 40.88% d. 37% 22. The total interest earned for the first four month in the defaulted contracts is: a. P80.85 b. P72.07 c. P60.94 d. P69.30 23. The realized gross profit for the year 2009 is: a. P291,335.95 b. P151,355.35 c. P249,674.52
d. P161,789.16
24. The installment method of recognizing profit for accounting purposes is acceptable if a. collections in the year of sale do not exceed 30% of the total sales price. b. an unrealized profit account is credited. c. collection of the sale price is not reasonably assured. d. the method is consistently used for all sales of similar merchandise. 25. Chris Co. sells equipment on installment contracts. Which of the following statements best
justifies
Chris’
use
of
the
cost
recovery
method
of
revenue
recognition
to
account for these installment sales? a. The sales contract provides that title to the equipment passes to the buyer only when all payments have been made. b. No cash payments are due until one year from the date of sale. c. Sales are subject to a high rate of return. d. There is no reasonable basis for estimating collectability.
Page 7 of 7
