Chapter 7 Problem I 1. 20x4: No Proft is recognized. P4,000 down payment is treated as a return o investment. 20x P!0 is proft. proft. P20 P20 is treated as a return o investment. investment. "o##owing years: $ac% annua# insta##ment P1,000 is proft.
2. 20x4: P4,000 is proft. 20x: P1,000 is proft. 20x&: P!0 is proft, proft, and P20 P20 is treated as return return o investment. investment. "o##owing years: $ac% annua# insta##ment is P1,000 is treated as a return o investment. '. Proft Percentage is ,!0 ( P10,000, or .!) o sa#es 20x4: P4,000 x !.), or P2,'00, is proft* proft* P1,!00 is is treated treated as a return o investment. investment. "o##owing years: P1,000 x !.), or P! per year, is regarded as proft. P42 per year is treated as return o investment. Problem II 1. $ntries in 20x4: +as%. +as% ... .. -ortgage Notes eceiva/#e eceiva/#e . ... ea# ea# $state . ,000 ain on a#e o ea# ea# $state .. 1,000 +as% -ortgage Notes eceiva/#e . .
', 00 20,00
00 00
$ntry in 20x: ea# $state . . 1&,00 3oss on epossession o ea# $state .. .. ',00 -ortgage Notes eceiva/#e eceiva/#e 20,000 2. $ntries in 20x4 +as% ', 00 -ortgage Notes eceiva/#e eceiva/#e . ... 20,00 ea# ea# $state .. ,000 eerred ross Proft on 5nsta##ment a#es ............ 1,000 +as% . . 00 -ortgage Notes eceiva/#e eceiva/#e . .... ... eceipt P00 cas% in 20x4 app#ica/#e to principa# o note eerred ross Proft on 5nsta##ment a#es ... ... ea#ized ross Proft on 5nsta##ment a#es...
00
2,00
2,00 ross Proft Percentages 1,000(24,000, or &2.) &.2) o P4,000 6co##ections in contract in 20x47 8r P2,00 $ntry in 20x ea# $state $state ... ... 1&,00 eerred ross ross Proft on 5nsta##ment 5nsta##ment a#es .. 12,00 -ortgage Notes eceiva/#e .. .. 20,000
ain in epossession o ea# $state .. ,000 Problem III 1. a. 5nsta##me 5nsta##ment nt +ontracts +ontracts eceiva/# eceiva/#e e 19 19 20,000 20,000 5nsta##ment a#es 20,000
/. +as% .. .. 120,000 120,000 5nsta##ment +ontracts eceiva/#e eceiva/#e 19 120,000 c. +ost o 5nsta##me 5nsta##ment nt a#es a#es .. .. -erc%andise -erc%andise 5nventory .. 200,000
200,000 200,000
d. -erc%an -erc%andise dise epossessi epossessions ons 14,00 14,00 eerred ross Proft on 5nsta##ment a#es 19 .. 4,000 3oss on epossession epossession ... 1,00 5nsta##ment +ontracts eceiva/#e, 19 . 20,000 ross Proft Percentages: 0,000(20,000, or 20) eerred ross ross Proft on epossession: epossession: 20) o P20,000 or P4,000 "air va#ue o repossessed merc%andise.. 3ess: ;nrecovered cost: ;npaid /a#anceP 20,000 3ess: eerred ross Proft 20) x P20,000 4,000 3oss on repossession. repossession.
P 14,00
1&,000 P 1,00
e. $xpenses $xpenses +as% . .
1&,000 1&,000 1&,000
2. o set?up set?up +ost +ost o o 5nsta## 5nsta##ment ment a#es: a#es: No entry 6since perpetua# inventory met%od is used7 /. >o set?up eerr eerred ed ross ross Proft on 5nsta## 5nsta##ment ment a#es: a#es: 5nsta##ment a#es 20,000 +ost o 5nsta##ment a#es . 200,000 eerred ross Proft on 5nsta##ment a#es?20x4.. 0,000 c.
24,000
or P24,000 d. +#osing o nomina# accounts. ea#ized ross Proft on 5nsta##ment a#es @ 20x4 $xpenses . 1&,000 3oss on epossessions . 1,00 5ncome ummary . &,00 >o c#ose t%e accounts or 20x4.
24,000
Problem IV 1. Aanuary to ecem/er '1
20x4
20x
617 >o record regu#ar sa#es:
1,00,00 0
&00,000
a#es
1,00,00 0
&00,00
627 >o record insta##ment sa#e: +as% 5nsta##ment accounts receiva/#e 5nsta##ment a#es
&0,000 '00,000
144,000 ''&,000 '&0,000
40,000
6'7 >o record cost o sa#es: Periodic -et%od: No entry Perpetua# -et%od: egu#ar a#es: +ost o a#es -erc%andise inventory 5nsta##ment a#es: +ost o insta##ment sa#es -erc%andise inventory 647 >o record co##ections: egu#ar a#es: +as%
40,000
&4,000 40,000
22,000
&4,000
'12,000 22,000
144,000
'12,000
'&0,000 144,000
10,000
'&0,000
204,000
5nsta##ment
20x2
!2,000
!2,000
'&,000
&0,000 !2,000
5nsta##ment
0,000
102,000
+as%
0,000
102,000
2. o recognize accrued interest receiva/#e 5nterest receiva/#e
1,440
5nterest income
2,0 1,440
6!7 >o set?up +ost o a#es: Periodic -et%od: +ost o insta##ment sa#es
40,000
-erc%andise inventory
2,0
&4,000 40,000
&4,000
Perpetua# -et%od: No entry 6!7 >o set?up +ost o 5nsta##ment a#es: Periodic -et%od: +ost o insta##ment sa#es %ipment s on insta##ment sa#es
22,000
'12,000 22,000
'12,000
Perpetua# -et%od: No entry 67 >o set?up eerred ross Proft 5nsta##ment sa#es '&0,000 +ost o insta##ment sa#es 22,000 eerred gross proft @ 20x4 10,000 eerred gross proft @ 20x ross proft rate @ 20x4: P 10,000 ( P'&0,000 B '0). ross proft rate @ 20x: P1&,000 ( P40,000 B '). 67 >o record rea#ized gross proft insta##ment sa#es: eerred gross proft @ 20x4 eerred gross proft @ 20x ea#ized gross proft
40,000 '12,000 1&,000
on
2,200
2,200 21,000 2,200
20x4: ea#ized gross proft on insta##ment sa#es: +o##ections app#ying as to principa#..P !2,000 -u#tip#ied /y: ross proft rate. '0) ea#ized gross proftP 21,&00 20x: ea#ized gross proft on insta##ment sa#es* 20x4 20x +o##ections @ P P principa# !2,000 &0,000 -u#tip#ies /y: ross proft ).......... CCCC'0) CCCC') ea#ized gross P P proft 21,&00 21,000
P 42,&00
4&,200
+#osing entries: 6107 >o c#ose rea#ized gross proft account: ea#ized gross proft 5ncome summary
21,&00
42,&00 21,&00
42,&00
6117 >o c#ose ot%er nomina# accounts
a#es 5nterest income +ost o sa#es
1,00,00 0 !4,0
&00,000 '!,440
8perating expenses 5ncome summary
40,000
&4,000
0,000 &!,440
102,000 1,0
6127 >o c#ose resu#ts o operations: 5ncome summary etained earnings
,040
2'1,40 ,040
2'1,40
Problem V 1. >ype o a#e egu#ar a#es: +as% sa#es +redit sa#es >ota# regu#ar sa#es 5nsta##ment a#es >ota# a#es
atio to >ota# a#es
<##ocated +ost P D14&,20 DD22,00 P 4',!0 CC!'1,20 P 1,1!0,000
&!(1,00 1,12(1,00
*P225,000/P1,800,000 x P1,170,000 = P146,250 **P450,000/P1,800,000 x P1,170,000 = P292,500
>%e a##ocation a/ove was /ased on t%e assumptions t%at t%e marEup or eac% type o sa#e is t%e same. Norma##y, t%e se##ing prices o t%e merc%andise are not t%e same or eac% type o sa#es. 2. >ype o a#e +as% sa#es +redit sa#es 5nsta##ment a#es >ota# a#es
atio to >ota# a#es 22(1,00 '!(1,00
<##ocated +ost P 1!,00 22,00
00,000DD P 1,20,000
00(1,00
CC !02,000 P 1,1!0,000
ross proft rate '0) '&)
+ost ratio !0) &4)
<##ocated +ostD P 1!,00 2,000
40)
&0)
C C&!,000 P 1,1!0,000
*P450,000 / 120% = P375,000 **P1,125,000 / 125% = P900,000
'. >ype o a#e +as% sa#es +redit sa#es 5nsta##ment a#es >ota# a#es
P
* Amount of sale x cost rato!
Problem VI >%e entries are reFuired under t%e periodic met%od: epossessed merc%andise......
&,400
eerred gross proft @ 20x4............ 3oss on repossession... 5nsta##ment accounts receiva/#e @ 20x4.
4,000 ',&00 120,000
"o recor# re$ossesse# mercan#se!
&e$ossesse# mercan#se''''''''''''''!!!!!! (as, etc )or arous cre#ts+''''''''!!!!!!!!!!!!!!!!
12,000 12,000
"o recor# recon#tonn costs
>%e #oss on repossession is computed as o##ows: $stimated se##ing price ater reconditioning costs.............. 3ess: econditioning costs P 12,000 +osts to se## and dispose. &,000 Norma# proft 620) x 10,0007 CC21,&00 . -arEet va#ue /eore reconditioning costs.. 3ess: ;nrecovered cost 5nsta##ment accounts receiva/#e @ 20x4, unpaid /a#ance... P120,000 3ess: eerred gross proft @ 20x4 6P120,000 x CC4,000 40)7..... 3oss on repossession.
P 10,000
CC',&00 P &,400
CC!2,000 P6 ',&007
Problem VII >%e entry to record t%e sa#e o t%e new ve%ic#e under t%e periodic met%od: >rade?in -erc%andise............... 8ver?a##owance on trade?in merc%andise. +as%.. 5nsta##ment accounts receiva/#e @ 20x4............
40,000 '&0,000 2,400,00 0 ','&0,00 0
5nsta##ment sa#es.......
&,&0,00 0
"o recor# nstallment sales -t tra#e.n!
<#ternative#y, t%e over?a##owance on trade?in merc%andise may a#so /e treated as net o insta##ment sa#es, t%e entry wou#d /e as o##ows: >rade?in -erc%andise............... +as%.. 5nsta##ment accounts receiva/#e @ 20x4............
40,000 2,400,00 0 ','&0,00 0
5nsta##ment sa#es 6net o over?a##owance7..............
&,&00,00 0
"o recor# nstallment sales -t tra#e.n!
>%e over?a##owance is computed as o##ows: >rade?in a##owance.................. 3ess: -arEet va#ue /eore reconditioning costs: $stimated resa#e price ater reconditioning costs. 3ess: econditioning costs.. +osts to se## 6) x P1,&0,0007 Norma# proft 620) x P1,&0,0007.......
P1,200,00 0 P1,&0,0 00 420,000 4,000 CC''&,00 0
CC40,00 0
8ver?a##owance
P '&0,000
>%e gross proft rate on insta##ment sa#es is computed as o##ows: 5nsta##ment sa#es...... 3ess: 8ver?a##owance
P&,&0,000 CCC'&0,000 P&,&00,000 CC',20,00 0 P2,&0,000 40.&0)
"urt%er, t%e entry to record t%e reconditioning costs is as o##ows: >rade?in -erc%andise............... +as%, etc 6or various credits7..............
420,000 420,000
"o recor# recon#tonn costs!
5ncidenta##y, t%e realized gross proft on installment sales o the new merchandise or t%e year 20x4 is computed as o##ows: >rade?in merc%andise 6marEet va#ue /eore reconditioning costs7 own p ayment 5nsta##ment co##ection 6-arc% '1 @ ecem/er '1: P0,000 x 10 mont%s7 >ota# co##ections.. -u#tip#ied /y: ross proft rate in 20x4.. ea#ized gross proft on insta##ment sa#es o new merc%andise
P
40,000 2,000,000 CCC00,000 P',&40,000 CCC40.&0) P1,4!!,40
Problem VIII 1. $ntries assuming t%at mont%#y payments consist o P&00 p#us interest on t%e unpaid /a#ance: 8ct. '1 +as% 20,000 -ortgage Notes eceiva/#e . ,000 ea# $state . &0,000 eerred ross Proft on 5nsta##ment a#es . 1,000
Nov. '0 +as% . -ortgage Notes eceiva/#e 5nterest 5ncome . 0 5nterest eceived: P,00 at 12) or 1 mont%, or P0
1,10
ec. '1 +as% 1,144 -ortgage Notes eceiva/#e .. 5nterest 5ncome 5nterest received: P4,400 6P,000?P&007 at 12) 1 mont%, or P44
&00
&00 44
'1 eerred ross Proft on 5nsta##ment a#es .. 4,240 ea#ized ross Proft on 5nsta##ment a#es 4,240 ross Proft Percentage: 1,000(!,000, or 20) ea#ized ross Proft: 20) o P21,200 6co##ections app#ica/#e to principa# in 19'7 or P4,240
2. $ntries assuming mont%#y payments o P&00 t%at inc#ude interest on t%e unpaid /a#ance o t%e contract: ec. '1 +as% 20,000.00 -ortgage Notes eceiva/#e ,000.00 ea# $state &0,000.00 eerred ross Proft on 5nsta##ment a#es .. 1,000.00 Nov. '0 +as% -ortgage Notes eceiva/#e .. 0.00 5nterest 5ncome 0.00
&00
5nterest eceived: P,000 at 12) or 1 mont% or P0. Ga#ance Payment, P&00? P0, or P0, is reduction in principa#7 ec. '1 +as% . -ortgage Notes eceiva/#e 0.0 5nterest eceived 4.0
&00.00
5nterest eceived: P4,0. Ga#ance Payment, P&00.00?4.0, o P0.0, is reduction in principa#. '1 eerred ross Proft on 5nsta##ment a#es 4,020.10 ea#ized ross Proft on 5nsta##ment a#es 4,020.10 ross Proft Percentage: 1,000(!,000, or 20) ea#ized ross Proft: 20) o P20,100.0 6co##ections app#ica/#e to principa# in 19'7, or P4,020.10 Problem IX 1. &('0x4: +as%. 2,000 Notes eceiva/#e 12,000
eerred ross Proft on a#e o Property ,' ea#ized ross Proft on a#e o Property ...
,'
'0,000
&('0(x& +as% . Notes eceiva/#e eerred ross Proft on a#e o Property ea#ized ross Proft on a#e o Property
0,000 0,000 1,0&!
1,0&!
1,000 1,000 ,!20
,!20
+ost o 5nsta##ment a#es .. -erc%andise 5nventory +ost o a#es: &0) o P200,000 5nsta##ment a#es .. +ost o 5nsta##ment a#es 120,000 eerred ross Proft on 5nsta##ment a#es &0,000
120,000 120,000 200,000
+as% . 124,000 5nsta##ment on +ontracts eceiva/#e @ 20x4... '0,000 5nsta##ment on +ontracts eceiva/#e @ 20x... '4,000 5nsta##ment on +ontracts eceiva/#e @ 20x&... &0,000 eerred ross Proft on 5nsta##ment a#es ?20x4 1',00 eerred ross Proft on 5nsta##ment a#es?20x ... 14,20 eerred ross Proft on 5nsta##ment a#es ?20x& ... 24,000 ea#ized ross Proft on 5nsta##ment a#es ... 2,00 ea#ized ross Proft 20x4: 4&) o P'0,000 or P1',00 20x: 42) o P'4,000 or P14,20 20x&: 40) o P&0,000 or P24,000 Problem XI 1. +a#cu#ation o gross proft percentage on insta##ment sa#es 20x&: P,000 gross proft on insta##ment sa#es, 20x&, (P'20,000 insta##ment
sa#es 20x& . 2!.) 20x: P4,000 deerred gross proft, 20x, (P10,000 insta##ment accounts receiva/#e 20x .. '0) 20x4: P,&00 deerred gross proft, 20x4 , ('0,000 insta##ment accounts receiva/#e 20x4 .. '2) 2. JJ $K;5P-$N>, 5nc. Ga#ance %eet ecem/er '1, 20x& ota# ota# 3ia/i#ities P ,& Stockholders’ Equity +apita# tocE .. P 100,000 etained $arnings .. P &,400 Ga#ance, Aan. 1, 20x& . 1', Ga#ance, ec. '1, 20x& . 4,1 >ota# tocE%o#derLs $Fuity P14,1 >ota# 3ia/i#ities and tocE%o#derLs $Fuity . 214,00 JJ $K;5P-$N>, 5nc. 5ncome tatement "or Mear $nded ecem/er '1, 20x&
a#es ............ +ost o goods so#d:
5nsta##ment a#es P'20,000
egu#ar a#es P12,000
P
>ota# P44,00 0
-erc%andise 5nventory, Aan. 1 P 2,000 Purc%ases .................. '0,000 -erc%andise ota# ea#ized ross Proft .
2'2,000
110,000
'42,000
P,000
P1,000
P10',00 0 1,12
P1,000
P!,!
1,12 P!,!
0,040 P1'!,1 11,0 0 P 1',
8perating $xpenses ... Net 3oss ..
JJ $K;5P-$N>, 5nc.
20x
20x4 P1',000
'0)
'2) ea#ized ross Proft .. P !2,! P ,&40
P 41,400
5nsta##ment a#es +ost o 5nsta##ment a#es . eerred ross proft
'20,000 2'2,000 ,000
eerred ross Proft, 20x& ............... eerred ross Proft, 20x ............... eerred ross Proft, 20x4 ............... ea#ized ross Proft on 5nsta##ment sa#es
!2,! 41,400 ,&40 122,1
5ncome ummary %ipment on 5nsta##ment o a#es -erc%andise 5nventory, Aan. 1, 20x& .
1!0,000 2'2,000
2,000 Purc%ases -erc%andise 5nventory, ec. '1, 20x& ..
'0,000 &0,000
5ncome ummary
&0,000
a#es . 5ncome ummary . ea#ized ross Proft on 5nsta##ment a#es..... 5ncome ummary .
12,000
5ncome ummary 8perating $xpenses ...
11,00
etained $arnings .. 5ncome ummary ...
1',
12,000 122,1 122,1 11,00 1',
Problem XII 1. +a#cu#ation o gross proft percentage on insta##ment sa#es 20x&: P10,000 gross proft on insta##ment sa#es, 20x&, (P00,000 insta##ment sa#es 20x& ') 20x: P&,000 deerred gross proft, 20x, (P240,000 insta##ment accounts receiva/#e 20x . 40) 20x4: P22,00 deerred gross proft, 20x4 , (0,000 insta##ment accounts receiva/#e 20x4 . 4)
2. eerred ross Proft, 20x& eerred ross proft, 20x eerred ross Proft, 20x4 3oss on epossessions.. +ance##ation o deerred gross proft, /a#ances upon repossessions: 20x&: ') o P,000, or P1,00 20x: 40) o P10,000, or P4,000 20x4: 4) o P,000, or P',&00
1,00 4,000 ',&00 ,00
<3$ +8P8<>58N 5ncome tatement "or Mear $nded ecem/er '1, 20x&
a#es ............ +ost o goods so#d: -erc%andise 5nventory, Aan. 1 P '0,000 Purc%ases .................. 44,000 epossessed -erc%andise .. 10,000 -erc%andise
5nsta##ment a#es P00,000
egu#ar a#es P12,000
>ota# P&2,000
'10,000
10,000
4&0,000
P10,000 '2,'00
P42,000
P10',000 '2,'00
ea#ized ross Proft on current yearLs sa#es .
P1!,!00
P42,000
P1,!00
100,&0 P'00,'0 ',00
educt #oss on repossession . >ota# ea#ized ross Proft . 8perating $xpenses Net 3oss ..
P2&,0 '00,000 P ',10
Analysis of ross Pro!t on Installment Sales Schedule to Accompany Income Statement "or #ear Ended $ecember %&' ()*+
eerred gross proft on 5nsta##ment sa#es @ /eore deau#ts, 19: 5nsta##ment contracts receiva/#e, P00,00, #ess co##ections, P41,000, or P,000* P,000 x ') .
P '2,'00
ea#ized ross Proft: 20x& 20x 20x4 +o##ections o 5nsta##ment contracts receiva/#e.. P41,000 P210,000 P '!,000 5nsta##ment sa#es gross proft percentage .. ') 40) 4) ea#ized gross proft ..P1!,!00 P 4,000 P 1&,&0 SA,ES C-.P-.A/I-0 1alance Sheet $ecember %&' ()*+ ota#
3ia/i#ities ota# 3ia/i#ities P 11,&0 tocE%o#dersL $Fuity +apita# tocE . etained $arnings . P 44,00
P100,000
Ga#ance, Aan. 1, 20x& ',10 Ga#ance, ec. '1, 20x& >ota# tocE%o#derLs $Fuity . 141,'0 >ota# 3ia/i#ities and tocE%o#derLs $Fuity .. 2!,000
41,'0 P
4. 5nsta##ment a#es .. 00,000 +ost o 5nsta##ment a#es .. eerred ross Proft, 20x& ..
'10,000 10,000
eerred ross Proft, 20x& 1!,00 eerred ross Proft, 20x 4,000 eerred ross Proft, 20x4 1&,&0 ea#ized ross Proft on 5nsta##ment a#es
2,'0
5ncome ummary 1,000 %ipment on 5nsta##ment a#es '10,000 -erc%andise 5nv, Aanuary 1, 20x& . Purc%ases . epossessed -erc%andise ..
'0,000 4,000 10,000
-erc%andise 5nv, ecem/er '1, 20x&... 5ncome ummary ..
',000
a#es .... 5ncome ummary
12,000
',000 12,000
ea#ized ross Proft on 5nsta##ment a#es..2,'0 5ncome ummary .. 5ncome ummary 3oss on epossession .
',00
5ncome ummary 8perating $xpenses ..
'00,000
etained $arnings 5ncome ummary .
',10
2,'0 ',00 '00,000 ',10
Problem XIII 1. eerred gross proft @ 20x4.. ,40!.00 eerred gross proft @ 20x.. ',4'.0 eerred gross proft @ 20x&.. !1,00&.!0 ea#ized ross Proft on 5nsta##ment a#es 620x4 @ 20x&7.. 1!2,2.0
+omputation o P rates: 20x4: P24!,000(P'0,000 B &), cost rate* P rate B 100) ? &) B ') 20x: P2,120(P4'2,000 B &&), cost rate* P rate B 100) ? &&) B '4) 20x&: P'!,2&0(P&02,000 B &'), cost rate* P rate B 100) ? &') B '!) +a#cu#ation o co##ections in 20x&: 20x4: Geginning /a#ance
P 24,020
20x: P'44,4&0 6/eginning /a#ance7 @ P&!,440 6ending /a#ance7 @ P2,200 6write?os on deau#t7 2!4,20 20x&: P&02,000 6sa#es7 @ P410,00 6ending /a#ance7 11,10 +a#cu#ation o rea#ized gross proft: 20x4: ') x P24,020 20x: '4) x P2!4,20 ',4'.0 20x&* '!) x P11,10 !1,00&.!0 >ota#
P
,40!.00
P1!2,2.0
2. eerred gross proft 20x 5nventory o epossessed -erc%andise.
!4.00 !4.00
"o re#uce 20x5 #eferre# ross $rot relate# to #efaulte# contract an# reurn cancellaton, 34% of P2,200 )P5,400 sales $rce. P3,200 collectons to #ate+ nentor no- re$orte# at P2,200 )alance of nstallment contract+, less P748 or P1,452!
3oss on repossession.. 5nventory o repossessed merc%andise..
'1.00 '1.00
"o re#uce nentor to maret as follo-s to reale a ross $rot of 37% on a resale estmate# at P1,700, te re$ossesse# mercan#se soul# e re$orte# at a alue of 63% of P1,700, or P1,071 te nentor ten reures a furter -rte.#o-n of P381 )P1,452 P1,071+
epossessed merc%andise cou#d /e recorded at its resa#e va#ue #ess t%e usua# gross proft margin on sa#es. ecording t%e merc%andise at P1,42 wi## resu#t in t%e rea#ization o #ess t%an t%e norma# proft margin on t%e resa#e o t%e goods in t%e su/seFuent period. i expenses o t%e resa#e exceed P24 6P1,!00 @ P1,427, t%e #ater period wou#d actua##y %ave to a/sor/ a #oss as a resu#t o suc% va#uation. ecording t%e goods at resa#e va#ue reduced /y t%e companyLs usua# proft margin on sa#es is recommended, or suc% practice wi## c%arge t%e next period wit% no more t%an t%e uti#ity o t%e goods carried orward. Problem XIV 2 33 Instruments 1. 5nsta##ment +ontracts eceiva/#e . -erc%andise 5nventory 6Piano7 eerred ross Proft on 5nsta##ment a#es &00.00
2.
'.
1,&00.00 1,000.00
+as% .......................... 5nsta##ment +ontracts eceiva/#e
1&0.00
+as% ........................ 5nterest 5ncome 5nsta##ment +ontracts eceiva/#e .
1&0.00
+as% ...................... 5nterest 5ncome . 5nsta##ment +ontracts eceiva/#e
1&0.00
eerred ross Proft on 5nsta##ment o a#es .. ea#ized ross Proft on 5nsta##ment o a#es 22.4
1&0.00 14.40 14.&0 11.4! 14.' 22.4
ross Proft Percentage: '!.) 6P&00(P1,&007 ea#ized ross Proft or 20x4: '!.) o &01.1 6sum o payments on insta##ment contract7 4.
-erc%andise 5nventory 6piano7 ... &0.00 eerred ross Proft on 5nsta##ment o a#es ........... '!4. 3oss on epossessions . &4.'& 5nsta##ment +ontracts eceiva/#e .1 eerred ross proft cance##ed upon repossession: '!.) o P.1 6/a#ance in insta##ment contracts receiva/#e account7 or P '!4.
Problem XIV 2 1i4 1ear 20x4: 5nsta##ment receiva/#es 5nventory eerred gross proft
+as%
20,000 10,000 100,000 0,000
5nsta##ment receiva/#es 20x: +as% 5nsta##ment receiva/#es eerred gross proft ea#ized gross proft 20x&: +as% 5nsta##ment receiva/#es 5nsta##ment receiva/#es 5nventory eerred gross proft +as%
0,000 120,000 120,000 0,000 0,000 0,000 0,000 '00,000 210,000 0,000 1',000
5nsta##ment receiva/#es eerred gross proft ea#ized gross proft
1',000 40,00 40,00
ross proft deerred at sa#e B '0) x P'00,000 B P0,000. ross proft earned at co##ection B 6P1',000(P'00,0007 x P0,000 B P40,00 68r cas% co##ected x P) BP1',000 x '0) B P40,007 Problem XV 2 /appan Industrial 617 easona/#y assured ? accrua# /asis s%ou#d /e used: u## gross proft recognized in t%e year o t%e sa#e. etermination o se##ing price: POn B 6PO<" n(i7 "ale :; POn B P1!,00 x 4.'' n B &, i B 10) POn B P1&,&1 6rounded7
ross proft on sa#e:
a#es +ost o sa#es ross proft 5nterest revenue??4 mont%s: P1&,&1 x 10) x 4(12 B >ota# income or 20x B P1!,11 P2!,221 B
P1&,&1 &'!,00 P1!,11 C 2!,221 P20&,'40
627 No reasona/#e assurance @ assume t%e use o insta##ment sa#es met%od 5nsta##ment sa#e: ross proft 6P1!,11(P1&,&17 B ross proft earned in 20x 6P0 x 22)7
P
5nterest revenue
0
2!,221
>ota# income or 20x 5ultiple Choice Problems 1. c 20x4: P1,200,000 x '0) B P '&0,000 20x: P1,400,000 x 40) B &0,000
22) rounded
P 2!,221
P20,000
2. d @ HP22,000 6P120,000(40)7I '. / 6P'&,000 Q 24)7 6P1,000 Q '0)7 B P10,000. 4. d 5nsta##ment
a @ assume t%e use o insta##ment sa#es met%od. 5t s%ou#d /e noted t%at i t%e co##ecta/i#ity is %ig%#y uncertain or extreme#y uncertain, t%e use o cost recovery met%od is preera/#e. P,000 x 6P'0,000 @ P24,0007(P'0,000 B P1,&00
11. / @ 20x4: P00,000 x '0) B P 10,000 20x: P&00,000 x 40) B 240,000
P'0,000
12. d @ same wit% No. 4 1'. / 5nsta##ment
P '20,000 P 12,000
1. d ea#ized ross Proft on 5nsta##ment a#es in 20x&: 20x4 sa#es: P10,000 x 22)P 2,200 20x sa#es: P0,000 x 2) 12,00 20x& sa#es: P4,000 x P2,200 ( 6P2,200P1,007 10,! P 2,2! ea#ized ross Proft on a#es in 20x 10,00 3ess: ea#ized ross Proft in 20x or 20x sa#es: 6P20,000 x 2)7 ,000 ea#ized ross Proft in 20x or 20x4 sa#es ,00 ivided /y: +o##ections in 20x or 20x4 sa#es 2,000 ross Proft ) or 20x4 sa#es
P
P P 22)
1&. a 5nsta##ment a#es -et%od: 20x' a#es: P240,000 x 2(12P 4,000 20x4 a#es: P10,000 x 2(12 ','! ea#ized ross Proft on 5nsta##ment a#esP !,'! +ost ecovery -et%od: 20x' +ost: P40,000 ( 1.2 3ess: +o##ections in 20x' +o##ections in 20x4 ;nrecovered +ost, 12('1(20x4
P'4,000 140,000 240,000 P 4,000
Under the cost recovery method , no income s recone# on a sale untl te cost of te tem sol# s recoere# trou cas rece$ts! All cas rece$ts, ot nterest an# $rnc$al $ortons, are a$$le# rst to te cost of te tems sol#! "en, all suseuent rece$ts are re$orte# as reenue!
1!. a 617 ain or 3oss on repossession: $stimated se##ing price 1,!00 3ess: Norma# proft 6'!) x P1,!007 -arEet va#ue o repossessed merc%andise
P &2 P 1,0!1
3ess: ;nrecovered +ost: ;npaid /a#ance @ 20x' 3ess: P @ x' 6P2,200 x'4)7 1,42 3oss on repossession
P 2,200
627 ea#ized gross proft on insta##ment sa#es: 20x2 a#es: 6P24,020 @ P 07 x ') 20x' a#es: 6P'44,4&0 @ P&!,440 @ P2,2007 x '4) ',4'. 20x4 a#es: 6P&02,000 @ P410,007 x '!) ea#ized gross proft on insta##ment sa#es
!4 P6 '17 P
,40!.0
!1,00&.! P 1!2,2.
1. c eerred ross Proft, end 612('12(20x4: 5<, end o 2004 x P )7 20x2 a#es: P 0 20x' a#es: 6P&!,440 x '4). 22,2.& 20x4 a#es: 6P410,00 x '!)7 11,!''.' 1. a @ reer to No. 1& or discussion. +ost, Aanuary 1, 20x4 3ess: +o##ections inc#uding interest @ 20x4 ;nrecovered +ost, ecem/er '1, 20x4
20. / 6P'00,000 Q P!0,0007 x P20,000 B P100,000 H6P2!0,000 Q P00,0007 x P'00,000I P100,000 B P10,000. 21. d HP,&00 x 61 @ .407I @ 6P2,100 @ P1407 B P1,400. 22. d P,400 @ P,0 B P2,20 6P',000 @ P'007 @ P2,20 B P10 gain. 2'. / P24,000 @ P!,200 B P1&,00 P1&,00 @ P1',00 B P','00 #oss. 24. d 6P2,000,000 @ P1,00,0007 Q P2,000,000 B 2) 2. a 6P00,000 x .27 @ P0,000 B P110,000, 2&. d
P!00,000 x .2 B P1!,000* P00,000 x .2 B P12,000.
2!. a
6P',000,000 @ P2,100,0007 Q P',000,000 B '0).
2. d
6P1,200,000 × .'07 @ P120,000 B P240,000.
2. a
P1,00,000 × .'0 B P'1,000 P00,000 @ H6P1,200,000 P1,00,0007 × .'0I B P22,000.
'0. c
6P',&00,000 @ P2,400,0007 Q P',&00,000 B '' 1(') 6P',&00,000 × .207 H6',&00,000 × .07 × 4(127I B P1,&0,000 P1,&0,000 × '' 1(') B P&0,000.
P1!4,&&2. P
&0,000 '2,1!0 P 2!,'0
'1. / H6P',&00,000 × .207 6P',&00,000 × .0 x (12I @ P2,400,000 B P240,000. '2. a P0. ''. c a#e: 5nsta##ment receiva/#es 4,00,000 5nventory ',&00,000 eerred gross proft 00,000 Payment: +as% 00,000 5nsta##ment receiva/#es 00,000 eerred gross proft 100,000 ea#ized gross proft 100,000 Ga#ance %eet: 5nsta##ment receiva/#es 64,00,000 @ 00,0007 P 4,000,000 eerred gross proft 600,000 @ 100,0007 00,000 5nsta##ment receiva/#es 6net7 P ',200,000 '4. / 12(1(x +as% H6P4,00,000 @ P00,0007(2 B P2,000,000I 2,000,000 5nsta##ment receiva/#es 2,000,000 eerred gross proft HP2,000,000 x 600(4,007I 400,000 ea#ized gross proft 400,000 Ga#ance s%eet: eerred gross proft: P00,000 400,000 B P400,000 ea#ized gross proft o P400,000 wou#d /e reported in t%e income statement. '. / @ reer to No. 1& discussion. +ost, Aanuary 1, 20x4.P 00,000 3ess: +o##ections inc#uding interest @ 20x4.P241,2& +o##ections inc#uding interest @ 20x 241,2& 42,' ;nrecovered +ost, ecem/er '1, 20x.P 1!,4&2 '&. c >rade?in a##owance 3ess: -O o trade?in a##owance: $stimated resa#e price ater reconditioning costs 3ess: econditioning costs Norma# proft 61) x P'&,0007 8ver?a##owance
P4',200 P'&,000 1,00 ,400 2,00 P 14,400
5nsta##ment sa#es 3ess: 8ver?a##owance
P122,400 14,400 P10,000 &,400 P 21,&00 20)
ea#ized gross proft: own payment >rade?in 6at marEet va#ue7
P !,200 2,00
5nsta##ment co##ections: 6P10,000 @ P2,00 @ P!,2007 ( 10 mos. 9 ' mos. 21,&00 >ota# co##ections in 200 P !,&00 x: ross proft rate 20) ea#ized gross proft P 11,20 '!. a ? +osts not yet recovered. '. c +ost, 20x4 20x4 cost recovery emaining cost, 12('1(x4 20x co##ection ross proft @ 20x '. d +ost 20x4 cost recovery 20x cost recovery emaining cost
P '0,000 620,0007 P 10,000 1,000 P ,000 P '0,000 6 20,0007 6 10,0007 0
>%e entire P20,000 payment received in 20x& is recognized as gross proft. 40. d a#e:
5nsta##ment receiva/#es 5nventory eerred gross proft
Payment: +as% 5nsta##ment receiva/#es
,000 '0,000 2,000 20,000 20,000
Ga#ance %eet: 5nsta##ment receiva/#es P,000 @ 20,000 eerred gross proft 5nsta##ment receiva/#es 6net7
P ',000 6 2,0007 P 10,000
41. a a#e:
5nsta##ment receiva/#es 5nventory eerred gross proft
200: +as%
,000 '0,000 2,000 20,000
5nsta##ment receiva/#es +as%
20,000 1,000
5nsta##ment receiva/#es 200: eerred gross proft ea#ized gross proft
1,000 ,000 ,000
Ga#ance %eet: 5nsta##ment receiva/#es eerred gross proft 5nsta##ment receiva/#es 6net7
P 20,000 6 20,0007 P 0
42. c ? P'00,000 620x4 sa#es7 P00,000 620x sa#es7 B P00,000
4'. a ross proft ) B 6P00,000 P40,0007(P00,000 B 0) 20x4: 0) x P'00,000 B P10,000 44. c 20x4 sa#es: ross proft ) B 6P00,000 P40,0007(P00,000 B 0) 0) x P'00,000 received in 2010 B P10,000 20x sa#es: ross proft ) B 6P1,00,000 P00,0007(P1,00,000 B 40) 40) x P400,000 received in 2010 B P1&0,000 >ota#: P10,000 P1&0,000 B P'10,000 4. c 20x4 a#es:
5nsta##ment receiva/#es B P00,000 @ P'00,000 6x4 co##ections7 ? P'00,000 6x co##ections7 B P
'00,000 eerred gross proft B P40,000 @ P10,000 6x4 co##ections7 ? P10,000 6x co##ections7 B 10,000 Net insta##ment receiva/#e or 20x4 sa#es
B
P
10,000 20x a#es: 5nsta##ment receiva/#es B P1,00,000 @ P00,000 6x co##ections7B P1,000,000 eerred gross proft B P&00,000 @ P200,000 6x co##ections7 B 400,000 Net insta##ment receiva/#e or 20x B P &00,000 >ota# B P !0,000 4&. a 5nsta##ment receiva/#e B P200,000 eerred gross proft B P0,000 6P200,000 x 40)7 "air va#ue B P!,000 epossessed inventory P !,000 eerred gross proft P 0,000 3oss on repossession 6p#ug7 P 4,000 5nsta##ment receiva/#e
P 200,000
4!. / ? P40,000 cost P'00,000 co##ections B P10,000 unrecovered costs 4. / 20x4 sa#es: +ost B P40,000* P'00,000 co##ected in eac% year 20x4?20x&. P'00,000 o cost recovered in 20x4, t%e ot%er P10,000 o cost recovered in 20x, so P10,000 o gross proft recognized in 20x, #eaving P'00,000 recognized in 20x&. 20x sa#es: +ost B P00,000* P00,000 co##ected in 20x, P400,000 co##ected in 20x&. P00,000 o cost recovered in 20x, t%e ot%er P400,000 o cost recovered in 20x, so P0 o gross proft recognized in 20x&. >ota#: P'00,000 P0 B P'00,000 4. d
20x4 a#es:
5nsta##ment receiva/#es B P00,000 @ P'00,000 6x4 co##ections7 ? P'00,000 6x co##ections7 B P
'00,000 eerred gross proft B P40,000 @ P0 6a## x4 co##ections to cost recovery ? P10,000 6P10,000 o x co##ections to cost recovery7 B Net insta##ment receiva/#e or 20x4 sa#es B
'00,000 P
0 20x a#es: 5nsta##ment receiva/#es B P1,00,000 @ P00,000 6x co##ections7B P1,000,000 eerred gross proft B P&00,000 @ P0 6a## x co##ections to cost recovery7 B P &00,000 Net insta##ment receiva/#e or 20x B P 400,000 >ota# B P 400,000 0. / @ same wit% No. . 1. c Note: ince t%e co##ecti/i#ity o t%e note is reasona/#y assured, t%e accrua# /asis s%ou#d /e app#ied. >%ereore, full ross $rot is recognized in t%e year o sa#e. ross proft on sa#e: a#es 6P1!,00 x 4.''7 P1&,&1 +ost o sa#es &'!,00 ross proft 6rea#ized7 P1!,11 2. c >ota# 5ncome or 20x4: ross proft 6rea#ized7 @ No. 1 5nterest revenueS4 mont%s: P1&,&1 x 10) x 4(12.. >ota# income or 20x4 '. / >ota# 5ncome or 20x: ross proft 6rea#ized7 @ a#ready recognized in 20x4 0 5nterest revenue @ mont%s in Mear 1 6P1,&&2D x (127 4 mont%s in Mear 2 6P!1,0!D x 4(127 !,1'4 >ota# 5ncome or 20x !,1'4
P1!,11 C 2!,221 P20&,'40
P P 4,441 2',&' P
Dc%edu#e o iscount
Mear 1 2 1
617 "ace
627 ;namortized iscount P'0,'1' 22&,!14
6'7 Net
647 iscount
P1!,00 x & years B P1,12,000* every year P1!,00 s%ou#d /e deducted on t%e previous /a#ance. 2 >%e present va#ue o sa#es(receiva/#es: P1!,00 x 4.'' B P1&,&1 ' P1,12,000 @ P1&,&1 4 627 @ 647
iscount amortization give rise to recognition o interest revenue(income.
4. a Note: ince t%e co##ecti/i#ity o t%e note cannot /e reasona/#y assured, t%e nstallment sales meto# soul# e a$$le# . <#so, i t%e t%ere is #eree of uncertant as to collectlt , t%e cost recoer meto# may /e used. 5nsta##ment sa#e: ross proft 6P1!,11(P1&,&17 22) 6rounded7 ross proft earned in 20x4 6P0D x 22)7 D no co##ections in 20x4.
P
0
. a >ota# 5ncome or 20x4: ross proft earned in 20x4 6P0D x 22)7
P 0
5nterest revenue 6reer to No. 2 >ota# income or 20x4.
2!,221 P 2!,221
&. d +o##ections in 20x 6ota# 5ncome or 20x P 101,41 !. dD esa#e Oa#ue 3ess: Norma# proft or 20x& ? year o repossession H6P',010,000 @ P1,&,'007(P',010,000I x ,00 -arEet Oa#ue o epossessed -erc%andise 3ess: ;nrecovered +osts @ 20x eau#ted /a#anceD 6P2!,000 @ P1&,0007 3ess: P H6P2,1&0,000 ? P1,42,&007(P2,1&0,000I x P11,000 3oss on repossession $ntry made: 5nventory o -D 5<?20x +orrect $ntry 6%ou#d /e7: 5nventory o - 6at -O7 P?20x 3oss on repossession 5<?20x +orrecting $ntry: P?20x
P ,00 ',14 P ,' P 11,000 CCC',!40
CC!,2&0 P6 1,07
11,000 11,000 ,' ',!40 1,0 11,000 ',!40
3oss on repossession :nentor of &
1,0 5,645**
. d 20x4: P24,000 @ P0 B P24,000 co##ections x ')P ,'&0 20x: P'00,000 @ P&0,000 @ P10,000 deau#ts B P2'0,000 x 42) &,&00 20x&: P40,000 @ P'20,000 @ P,000 deau#ts B P1,000 x 40) &2,000 ea#ized gross proft on insta##ment sa#es in 20x& P1&!,&0 . / 20x a#es
20x& a#es
Net -arEet Oa#ues 3ess: ;nrecovered +ost: 5<, unpaid /a#ances x: +ost atio ain 6#oss7
P 4,00 P10,000 0)
,00 P 61,'007
&0. c 5nsta##ment a#es 3ess: 8ver?a##owance: >rade?in a##owance 3ess: -O o >rade?in -erc%andise: $stimated esa#e Price 3ess: Norma# proft 62) x P1,400,0007 econditioning costs &00,000 rade?in merc%andise 6at -O7 00,000 P on 5( in 20x4 10,000 /heories 1 >rue . 2 >rue
. ' "a#se . 4 "a#se . >rue .
&.
>rue
11.
!. >rue
12 . 1' . 14 . 1 ,
. >rue . >rue 10 "a#se ,
"a#se >rue >rue >rue >rue
P ',00
P ,000 &0) P
',000 00
P6 007
P ',&00,000 P1,00,000 P 1,400,000 '0,000 10,000
00,000 P
P
00,000 1& 2(') P P
1&.
>rue
21 .
c
2&.
a
'1 .
c
1! . 1 . 1 . 20 .
>rue
22 . 2' . 24 . 2 .
d
2! . 2 . 2 . '0 .
/
'2 . '' . '4 . ' .
c
/ c c
d c /
d / d
c / /
'&.
c
41.
'! . ' . ' . 40 .
d
42 c . 4' c . 44 c . 4 .
/ / d
d
