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 Credit
Deferred gross profit – 2012 P50,000
Installment contract receivable – 2012 P12,500
Installment contract receivable – 2013 150,000
Installment sales 375,000
Inventory, September 30, 2012 62,500
Loss on repossessions 3,750
Purchases 435,000
Repossessions 2,500
Sales 312,000

The post-closing trial balance on September 30, 2012 shows the following balances of
certain accounts:

Installment contract receivable – 2012 P100,000

Deferred gross profit – 2012 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 d. P140,875

2. The Lhaban Appliance Company reports gross profit on the installment basis. The
following data are available:
2011 2012 2013
Installment sales P240,000 P250,000 P300,000
Cost of goods – installment sales 180,000 181,250 216,000
Gross profit 60,000 68,750 84,000

Collections:
2011 installment contracts P 45,000 P 75,000 P 72,500
2012 installment contracts 47,500 80,000
2013 installment contracts 62,500

Defaults:
Unpaid balance of 2011
installment contracts P 12,000 P 15,000
Value assigned to repossessed
merchandise 6,500 6,000
Unpaid balance of 2012
installment contracts 16,000
Value assigned to repossessed
merchandise 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 P 5,000
Installment accounts receivable – 2012 40,000
Installment accounts receivable – 2013 140,000
Inventory, December 31, 2013 200,000
Other assets 497,000
Trade accounts payable P50,000
Unrealized gross profit – 2011 10,000
Unrealized gross profit – 2012 86,000
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PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES

Unrealized gross profit – 2013 100,000

Capital stock 600,000
Retained earnings 80,000
Repossession gain 6,000
Operating expenses 50,000 _______
P932,000 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 800
Unrealized gross profit – 2012 2,400
Installment accounts receivable – 2011 P2,000
Installment accounts receivable – 2012 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:
2012 2013
Installment sales P480,000 P620,000
Gross profit rates based on cost 25% 20%
Cash collections on 2012 sales 130,000 240,000
Cash collections on 2013 sales 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:

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PRACTICAL ACCOUNTING 2 (SY. 2017-2018) – INSTALLMENT SALES

Installment sales P400,000

Gross margin based on cost 66 2/3%
Inventory, Dec. 31, 2013 80,000
General and administrative expenses 40,000
Accounts receivable, Dec. 31, 2013 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 Mark-up on Cost Sales

Cash 25% P250,000
Charge 33 1/3% 400,000
Installment 50% 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 Dec. 31, 2013
Installment contract receivable – 2011 P 24,020 P -
Installment contract receivable – 2012 344,460 67,440
Installment contract receivable – 2013 - 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:

2011 2012 2013

Net Sales P380,000 P432,000 P602,000
Cost of Sales 247,000 285,120 379,260

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 profit on December 31, 2013 and the gain (loss) on
repossession are:
a. P172,892.50 and (P381) c. P142,500.00 and P452
b. P172,892.50 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 P 38,500

Installment receivable, 2012 155,000
Deferred gross profit, 2011 11,550
Deferred gross profit, 2012 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 P 0

Installment receivable, 2012 42,000
Installment receivable, 2013 100,500
Deferred gross profit, 2011 11,550
Deferred gross profit, 2012 62,000
Deferred gross profit, 2013 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
2012 2013
Installment sales P1,200 P1,500
Cost of installment sales 720 1,050
Collections on installment sales
2012 630 450
2013 0 900

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 P15,000 Repossessions P 3,000

Installment accounts receivable – 2013 200,000 Installment sales 425,000
Inventory, December 31, 2012 70,000 Regular sales 385,000
Purchases 555,000 Deferred gross profit – 2012 54,000

Additional information:
Installment accounts receivable – 2012, January 1, 2013 P120,000
Inventory of new and repossessed merchandise, December 31, 2013 95,000
Gross profit rate on regular sales 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 P32,000

Revenues – interest 3,600
Cost of goods purchase (includes inventory of
goods on hand of P2,000) 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 recognition, what is the
realized gross profit on December 31, 2013?
a. P16,080 b. P25,586 c. P18,060 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
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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 to Matiisin Company which sells the appliances on the
installment basis:
2003 2004 2005
Installment sales P390,000 P420,000 P480,000
Cost of sales 237,900 243,600 288,000

From Sales Made In

2003 2004 2005
Installment accounts receivable
January 1, 2005 P24,000 P300,000
December 31, 2005 60,000 P320,000

Repossession on defaulted accounts

Were made during 2005, as follows:
From Sales Made In
2004 2005

Account balance P 10,000 P 5,000

Net resale value of repossessed merchandise 4,500 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 Dec. 31, 2014 Dec. 31, 2015
Installment sales ? P500,000 P600,000
Cost of goods sold P300,000 ? ?

Balances as of:
Dec. 31, 2013 Dec. 31, 2014 Dec. 31, 2015
Installment AR, 2013 P350,000 P125,000 P 35,000
Installment AR, 2014 307,500 140,000
Installment AR, 2015 490,000
DGP, 2013 P122,500 P 43,750 P 43,750
DGP, 2014 123,000 120,000
DGP, 2015 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 2006 2007
Installment sales P360,000 P375,000 P450,000
Cost of installment sales 270,000 271,875 324,000
Gross profit P 90,000 P103,125 P126,000

Collections:
2005 installment contracts P 67,500 P112,500 P108,750
2006 installment contracts 71,250 120,000
2007 installment contracts 93,750

Defaults:
Unpaid balance of 2005
installment contracts P 18,750 P 22,500
Value assigned to repossessed
merchandise 9,750 9,000
Unpaid balance of 2006
installment contracts 24,000
Value assigned to repossessed
merchandise 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 P378,000

Installment sales 794,970
Merchandise inventory, January 1 174,180
Purchases 627,891
Merchandise inventory, December 31 108,630
Cash collections on installment contracts:
Down payment 198,750
Installment payments (include interest of
P27,758.52). Average 6 monthly
installment on all contracts except on
defaulted contracts. 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.

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