:Y"'\DudongElectronics makes all of its sales on credit and accounts for them using l-/the installment sales method.

For simplicity, assume that all sales occur on the first day of the year and that all cash collections are made on the last day of the year. Dudong Electronics charges 18%interest on the unpaid installment balance Data for 2007 and 2008 are as follows: 40) 1/
/ 63

2007 Sales Cost of goods sold Cash collections (principal and interest) 2007 sales 2008 sales . '" . .

2008

PlOO,OOO P120,000 60,000 80,000 50,000 90,000 (Adapted)

a. b.

P14,040 21,600

y d.,

P35,640 49,700

a. b. '~e

P14,384 22,800

.-c:
d.

P37,184 39,600

books of Harry Co. show the following balances on December 31,2008: Accounts Receivable.... Deferred Gross Profit (before adjustment) P313,750 38,000

Regular accounts............... 2007 installment accounts 2008 installment accounts......

P207,500 16,250 90,000

Sales on an installment basis in 2007 were made at 30% above cost; in 2008, at 33 1/3 above cost. Expenses paid was P1,500 relating to installment sales. How much is the net income on installment sales? P11,OOO 11,500

is

sv.

c.

P16,000 10,250

6. D<T Co. accounts for installment sales on the installment basis. On January 1, 2006, ledger accounts included the following balances:
-.!JO I.

iJp7.

Installment Receivable InstallmentReceivable Deferred Gross Profit Deferred Gross Profit

2006 2007 2006 2007

. . . .

38,500 155,000 11,550 62,000

On December 31, 2008, account balances before adjustments for realized gross profit on installment sales were: Installment Receivable Installment Receivable Installment Receivable Deferred Gross Profit Deferred Gross Profit Deferred Gross Profi~ 2006 2007 2008 2006 2007 2008 . . . . . . P none 42,000 100,500 . 11,550 62,000 75,810

a. b.

P132,51O 98,910

c.

,4:

P 97,510 102,834

7. DipologCompany sells appliances on the installment basis. Below are information for the past three years: L\.~'1. -.s'1.~1lJ,(l, 2008 Installment sales Cost of sales Collections on: 2008 installment sales 2007 installment sales 2006 installment sales . P750,000 . 450,000 . . . 275,000 180,000 125,000 2007 P600,000 375,000 240,000 120,000 2006 P400,000 260,000

Repossessions on defaulted accounts included one made on a 2008 sale for which the unpaid balance amounted to P5,000. The depreciated value of the appliance repossessed was P2,500. ~

a. )1'.

P108,000
110,000

c. d.

P221,250 221,500

Com'ado Motors uses the installment method of accounting, what would the company report as total realized gross profit for the year 2008? a. )l. P1,012,000 3,044,250 c. d. P3,753,750 6,993,250

12. The various documents and records which were recovered immediately after a . fire gutted its premises, EMC Marketing Co. gathered the following information (the company uses the installment method of accounting): 'l-:t1. 'J.).~. 2006 2001' 2008 Installments sales . P500,000 (?) Cost of inst. sales . (?) Gross Profit on inst. sales Collection on: 2006 sales . 2007 sales . 2008 sales . Realized gross profit on installments sales P800,000 600,000
(?)

(?) (?) 282,000 100,000 500,000 400,000 241,000

250,000 200,000

",.().

.,.

(?)

.......

q4i-

Based on the information given above, the cost of installment sales for the year' --::' 2008 was: a. )7. P 900,000 918,000 P932,000 940,000

{1

\ U One ofits customers, Mr. Ambo purchased

18. EMC Motors, a dealer of motor vehicle, sales exclusively on installment

-<J

basis. a motorcycle for P45,375. The cost to EMC was P25,41O.Aftermaking an initial paymentofP6,050, MJ.'.Ambo defaulted on subsequent payments. EMC lost no time in repossessing the motor vehicle which, by this time, was appraised at a value of P12,.50. EMC ha<;lto inr.ur additional cost of repairs/ remodelling of Pl,650 before the motor vehicle was 'tubsequently resold for P27,500 to Mr. Joey who made an initial payment of P6,875.

a.P3,025 /1'J. 3,300

c. d.

P3,575 3,850

14. Lane Company, which began operations on January 1, 2008, appropriately uses the installment method of accounting. The following information pertains to Lane's operations for the year 200S: Installment sales Regular sales: Cost of installment sales Cost of regular sales ..: General8.nd administrative expenses Collections on installment sales . . . . . .
Pl,OOO,OOO

600,000 500,000 300,000 100,000 200,000

The deferred gross profit account in Lane's December 31, 2008 balance sheet should be P150,000 320,000

,z:
d.

P400,000 500,000

15. The Central Plains Subdivision sells residential subdivision lots on installment basis. The following information was taken from the company's records as at December 31,2008: InstallmentAccounts Receivable: January 1, 2008 Decelnber 31, 2008 Unrealized G;rossProfit, January 1, 2008 Installment Sales .._ _

. P755,000 840,000 . 339,75'0 . . 950,000

~ b.

P378,000 339,750

P427,500 389,250

16. Gema, Inc. began operations on January 1,2008 and appropriately uses the installment method of accounting. The following data are available for 2008: Installment accounts receivable, 12/31/2008....................... Installment sales for 2008 Gross profit on sales P600,000 1,050,000 40%

What amount of installment accounts receivable should be presented in Cente's December 31,2008 balance sheet?

r
#!he

a.

P270,000 277,500

c. d.

P279,000 300,000 (AlCPA)

followingselected accounts appeared in the trial balance of Union Sales as of December 31,2008: .

Installment Receivable - 2007 sales Installment Receivable - 2008 sales Inventory, December 31, 2007 Purchases ,Repossession Installment Sales : Sales (Regular) T)nrealized Gross Profit 2007
d

. . P 15,000 200,000 : . 70,000 . 555,000 3,000 . . . .

:.

425,000 385,000 54,000

Installment Receivable - 2007 sales, as of December 31,2007 120,000 Inventory of new and repossessed merchandise as of December 31,2008 95,000 Gross Profit percentage of regular sales during the year 30% on sales Repossession was made during the year. It was a 2007 sale and the corresponding uncollected account at the time ofrepossession was P7,750. (1) The total realized gross profit on installment sales in 2008, and (2) gain Ooss) on repossession in 2008: . --::1. b. (1) P129,262.50; (1) 85,500.00; (1) 129,262.50; (1) 85,500.00; (2) P(1,262.50)/ (2) (1,262.50) (2) 1,262.50 (2) 1,262.50

Gloria Corporation started operations on January 1, 2007 selling home appliances and furniture sets both for cash and on installment basis. Data on the installment sales operation of the company gathered for the years ending December 31, 2007 and 2008 were as follows: 16'1... (361. I 2007 Installment sales : Cost of installment sales Cash collected on installment sales 2007 installment contracts 2008 installment contracts . P400,000 240,000 . . . 2008 P500,000 350,000 150,000 300,000

On Janyary~009 an installment sale ~'n 007 was defaulted and the merchandise with an appraised value ofP, was repossessed. Related . installmentreceivablebalanceonJanuary ~ 09 was p.,oOO. (1) The balance of Deferred Gross Profit on December 31, 2008, and (2) the gain or (loss) on repossession in 2009.

a.

(1) P130,000; (2) P200 (1) 76,000; (2) 200

(1) P 76,000; (2) P1,800 (1) 130,000; (2) (200) (PhilCPA)

Jahe Enterprises uses the installment method of accounting and it has the following data at the year-end: Gross margin on cost :.................................. Unrealized gross profit _Cash collections including down payments 66-2/3% P192,000 360,000

P480,000 552,000

c. ~

P648,000 840,000

The income statements amounts:

for the years 2007 and 2008 included the following

2007 Revenue - collections on principal Revenue - interest Cost of goods purchased* *Includes increase in inventoryP10,000 in 2007 & P16,000 in 2008. . . . P 64,000 7,000 100,S50

---

2008

P100,000 11,000 105,250

Compute the realized gross profit for the year (1) 2007, and (2) 200S assuming the use of installment method of accounting:

(1) P27,200; (2) P45,SOO b. (1) 23,149; (2) 37,378

.r-..

(1) P27,200; (2) P37,37S (1) 23,149; (2) 45,SOO (PhilCPA)

.

I5Bl The Ana Motors Company makes all sales on installment contracts and accordingly fJ reports income on the installment basis. Installment contracts receivables are
accounted for by years. Def::mlted contracts are recorded by debiting Loss on Repossession account and crediting the appropriate Installment Contract. Receiv~bleaccount for'the unpaid balance at the time of default. AUrepossessions and trade-ins are recorded at realizable values. The following data relate to the transactions during 2007 and 200S-:" 2007 Installment sales . Installment contract receivable, 12/31 .2007 sales . 200S sales . Purchases ~ . New m~rchandise inventory, 12/31 at cost Loss on repossessions . P150,000 2008/ P19S,500 25,000 95,000 120,000 26,000 6,000/

100,000 10,000

The company auditor disclosed that the inventory taken on December 31, 200S did not include certain merchandise received as trade-in on December 2, 200S for , which an allowance was given. The appraised value ofthe merchandise is P1,500 which was also the allowance on the trade-in. No entry was made to record this merchandise on the books at the time it was received. In 2007, a 2008 contract was defaulted and the merchandise was repossessed. At the time of default, the

repossessed merchandise had an appraised value of P2,500. The repossessed merchandise was neither recorded nor included in the physical inventory on December 31,2008. Compute the (1) total realized gross profit on sales in 2008 and (2) gain (loss) on reposseSSlOn. a.

/
Q~

(1) P70,000; (2) P 100 (1) 70,000; (2) (1,100)

.

c. d.

(1) P50,400; (2) P(1,100) (1) 19,600; (2) 3,500 ~~

January 1, 2007 Blue Company commenced its sales of gas stoves. Separate ~~ounts were set up for installment and cash sales, but perpetual inventory record was not kept. On the installment sales a down payment of 1/3was required, with the balance payable in 18 equal monthly installments. The company adjusted \! its records at the end of each year to the "installment basis" by use of a deferred \! gross profit account. When contracts were defaulted, the unpaid balances were charged to a bad debts expense account, and sales of repossessed merchandise w~re credited to this account. At the end of the year the expense account was adjusted to reflect the actual loss.

Sales: New gas stoves for cash . New gas stoves on installment .(including the 1/3 cash down payment) Repossessed gas stove . Purchases . Physical inventories at December 31: New gas stoves at cost . Repossessions at appraised value . Unpaid balances of installment contracts defaulted: 2007 sales : . 2008 sales . Cash collections on installment contracts, exclusive of down payments: 2007 sales . 2008 sales .

2007 ---P 27,000 235,000 750 193,000 45,500 180 3,580

2008 ----P 37,000 330,000 875 215,000 60,000 200 4,650 "3,750 77,000 70,000

54,000

Compute the (1)balance ofInstallmentAccounts Receivable - 2007 on December 31, 2008, and (2) The realized gross profit for the year 2008. (1) PI7,437; (2) P114,880 (1) 17,437; (2) 131,530 (1) P22,087; (2) P131,500 (1) 22,087; (2) 114,880 (PhilCPA)

The trial balance ofDumagueteAppliance Corporation as of the end ofthe fisca... year on September 30, 2008 is: Debit Accounts'receivable Accounts payable Allowance for depreciation Capital stock Cash : Deferred gross profit- 2007 Equipment Installment contract receivable - 2007 Installment contract receivable - 2008 Installment sales _Inventory, Sept. 30, 2007 Loss on repossessions : Prepaid expenses Purchases Repossessions Retained earnings Sales Selling and administrative expenses Total . . . . . . . . . . . . . . . . . . . P 100,000 P 100,000 33,750 125,000 46,250 50,000 112,500 12,500 150,000 375,000 62,500 3,750 3,750 435,000 2,500 30,000 312,500 97,500 P1,026,250 P1,026,250 Credit

The post-closing trial balance on Sept. 30, 2007 shows the following balances of certain accounts: Installment contract receivable - 2007 Deferred gross profit - 2007 . . P100,OOO 50,000

The accollntant made the following entry for a repossession on a sale of 2007 towards the end offiscal year: Repossessions Loss on repossessions Installment contract receivable - 2007 . . . P2,500 3,750

The inventory of new;and repossessed merchandise on Sept, 30, 2008 amounted toP75,000.

P141,875 101,250

c.

cf.

P 93,750 235,625

59.

The Precious Appliance Company started business on January accounts were established for installment and cash sales.

1, 2008. Separate

On installment sales, the contract price is 106% ofthe cash sale price. A standard installment contract is used whereby a down payment of 1/4 of-the installment price is required, with the balance.Ilayable in 15 equal monthlyinstallments. The interest charged per month is 1% of the unp~tcl cash sales price equivalent. It is recognized in the period earned. Installments receivable and installment sales are recorded at the contract price. When contracts are defaulted, the unpaid balances are charged to Bad Debt Expense. Sales of defaulted merchandise are credited to Bad Debt Expense. The following data show the results of transactions Sales: Cash sales Installment sales Repossessed sales Merchandise inventory, January 1, 2008 Purchases . Merchandise inventory, December 31, 2008: New merchandise Repossessed inventory : Cash collections on installment contracts: Down payments Subsequent installments including interest ofP9,252.84 (average of six monthly installments on all contracts, except on defaulted contracts) Five contracts payments. totalling Pl,060 were defaulted . . . . . . . PI26,000 265,000 230 58,060 209,300 33,300 180 in 2008:

. installment

after 3 monthly

a. b.

35%

45%

c. d.

37.75% 37.00%

f}O. (

:sing the same information in No. 59, the total interest installment sale contract for the first four months is:

earned

on a PI,060

f
9"b.

P20.67 37.16

c. d.

P39.I5 159.00