INSTALLMENT SALES

1. MM Company began operations on January 1, 2007 and appropriately uses the

installment method of accounting. The following data are available for 2007 and 2008

2007 2008

Installment sales ---------------------------------- P1,200,000 P1,500,000

Cash collections from
2007 sales -------------------------------- 400,000 500,000
2008 sales -------------------------------- 600,000
Gross profit on sales ----------------------------- 30% 40%

The realized gross profit for 2008 is

a. P240,000 c. P440,000
b. 390,000 d. 600,000
(AICPA)

2. TT Company, which began business on January 1, 2008, appropriately uses the

installment sales method of accounting. The following data are available for 2008:

Installment accounts receivable, 12/31/08 --------------------- P200,000

Deferred gross profit, 12/31/08 (before recognition
of realized gross profit) ---------------------------------- 140,000
Gross Profit on sales ---------------------------------------------- 40%

The cash collections and the realized gross profit on installment sales for the year ended
December 31, 2008 should be

Cash collections Realized gross profit

a. P100,000 P80,000
b. 100,000 60,000
c. 150,000 80,000
d. 150,000 60,000
(AICPA)
3. Dudong Electronics makes all of its sales on credit and accounts for them using 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:

2007 2008

Sales ---------------------------------------- P100,000 P120,000

Cost of goods sold ------------------------ 60,000 80,000
Cash collections (principal and interest)
 2007 sales ---------------------------------- 40,000 50,000
2008 sales 90,000
(Adapted)

The interest income recognized in 2008 amounted to:

a. P14,040 c. P35,640
b. 21,600 d. 49,700

4. Using the same information in No. 3, compute the realized gross profit in 2008:

a. P14,384 c. P37,184
b. 22,800 d. 39,600

5. The books of Harry Co, show the following balances on December 31, 2008:

Accounts Receivable --------------------------------------- P313,750

Deferred Gross Profit (before adjustment) -------------- 38,000

Analysis of the accounts receivable reveal the following:

Regular accounts -------------------------------------------- P207,500

2007 installment accounts --------------------------------- 16,250
2007 installment accounts --------------------------------- 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?
a. P11,000 c. P16,000
b. 11,500 d. 10,250
(PhilCPA)

6. DJ Co. accounts for installment sales on the installment basis. On January 1,2006, ledger
accounts included the following balances:

Installment Receivable - 2006 ---------------------------- P 38,500

Installment Receivable - 2007 ---------------------------- 155,000
Deferred Gross Profit - 2006 ---------------------------- 11,550
Deferred Gross Profit - 2007 ---------------------------- 62,000

On December 31,2008, account balances before adjustments for realized gross profit on
installment sales were:

Installment Receivable - 2006 ---------------------------- P none

Installment Receivable - 2007 ---------------------------- 42,000
Installment Receivable - 2008 ---------------------------- 100,500
Deferred Gross Profit - 2006 ---------------------------- 11,550
Deferred Gross Profit - 2007 ---------------------------- 62,000
 Deferred Gross Profit - 2008 ---------------------------- 75,810

Installment sales on 2008 were made at 42% above cost of merchandise.

The total realized gross profit on installment sales in 2008:

a. P132,510 c. P97,510
b. 98,910 d. 102,834
(PhilCPA)
7. Dipolog Company sells appliances on the installment basis. Below are information for
the past three years:
2008 2007 2006

Installment sales ------------------ P750,000 P600,000 P400,000

Cost of sales ----------------------- 450,000 375,000 260,000
Collections on:
2008 installment sales --- 275,000
2007 installment sales --- 180,000 240,000
2006 installment sales --- 125,000 120,000 150,000
Repossessions on defaulted accounts included one made on a 2008 sale for which the
unpaid balance amounted to P5,000. The depreciated values of the appliance
repossessed was P2,500.
The realized gross profit in 2008 on collections of 2008 installment sales was:
a. P108,000 c. P221,250
b. 110,000 d. 221,600
(PhilCPA)

8. On January 1, 2007, Art Company sold its idle plant facility to Tony, Inc. for P1,050,000.
On this date, the plant had a depreciated cost of P735,000. tony paid P150,000 cash on
January 1,2007 and signed a P900,000 note bearing interest at 10%. The note was
payable in three annual installments of P300,000 beginning January 1,2008. Art
appropriately accounted for the sale under the installment method. Tony made timely
payment of the first installment on January 1, 2008 of P390,000 which included interest
of P90,000 date of payment. At December 31, 2008, Art has a deferred gross profit of

a. P 0 c. P508,200
b. 208,000 d. 309,640
(AICPA)

9. On October 1, 2007, Rodel Corporation, a real estate developer, sold land to Gerry
Company for P5,000,000. Gerry paid cash of P600,000 and signed a ten-year P4,400,000
note bearing interest 12%. The carrying amount of the land was P4,000,000 on the date
of sale. The note was payable in forty quarterly principal installments of P110,000
beginning January 2,2008. Rodel appropriately accounts for the sale under the cost
recovery method. On January 2, 2008, Gerry paid the first principal installment P110,000
and interest of P132,000. For the year ended December 31,2008, what total amount of
income should Rodel recognize from the land sale and the financing?
 a. P 0 c. P508,200
b. 208,000 d. 309,640
(AICPA)
10. Asser Computer Co. began operation at the beginning of 2008. During the year, it had
cash sales of P6,875,000 and sales on installment basis of P16,500,000. Asser adds a
markup on cost of 25% on cash sales and 50% on installment sales. Installments
receivable at the end of 2008 is P6,600,000. Total gross profit for 2008 is:

a. P1,375,000 c. P4,675,000
b. 3,300,000 d. 3,575,000
(Adapted)

11. Conrado Motors sells locally manufactured jeepneys on the installment basis. The
information presented below relates to operations during the past three years.
2008 2007 2006

Cost of ins. sales ------------ P8,765,125 P7,700,000 P4,950,000

Dec. 31 balance:
Ins. R ble, 2008 ---- 9,728,125
Ins. R ble, 2007 ---- 3,025,000 8,387,500
Ins. R ble, 2006 ---- 1,512,500 4,812,500
Gross profit rate ------------ 32% 30% 28%

Conrado Motors uses the installment method of accounting, what would the company
report as total realized gross profit for the year 2008?

a. P1,012,000 c. P3,753,750
b. 3,044,250 d. 6,993,250
(Adapted)
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):

2006 2007 2008

Installments sales ---------------P500,00 P800,000 P (?)

Cost of ins. sales ---------------- (?) 600,000 (?)
Gross Profit on inst. sales (?) (?) 282,000
Collections on:
2006 sales -------------- 50,000 250,000 100,000
2007 sales -------------- - 200,000 500,000 2008
sales -------------- - - 400,000 Realized gross profit
On installments sales 11,000 (?) 241,000
Based on the information given above, the cost of installment sales for the year 2008
was:
a. P900,000 c. P932,000
b. 918,000 d. 940,000
(Adapted)
13. EMC Motors, a dealer of motor vehicle, sales exclusively on installment basis. One of its
customers, Mr. Ambo purchased a motorcycle for P45,375. The cost to EMC was
P25,410. After making an initial payment of P6,050, Mr. Ambo defaulted on subsequent
payments. EMC lost no time in repossessing the motor vehicle which, by this time, was
appraised at a value of P12,650. EMC had to incur additional cost of repairs/remodeling
of P1,650 before the motor vehicle was subsequently resold for P27,500 to Mr. Joey
who made an initial payment of P6,875.

How much profit was realized on the sale to Mr. Joey?

a. P3,025 c. P3,575
b. 3,300 d. 3,850
(Adapted)
14. Lane Company, which began operations on January 1, 2008, appropriately uses the
installment method of accounting. The following information pertains to Lanes
operations for the year 2008:

Installment sales --------------------------------------------- P1,000,000

Regular sales ------------------------------------------------- 600,000
Cost of installment sales ------------------------------------ 500,000
Cost of regular sales ----------------------------------------- 300,000
General and administrative expenses ---------------------- 100,000
Collections on installment basis ---------------------------- 200,000

The deferred gross profit account in Lanes December 31, 2008 balance sheet should be
a. P150,000 c. P400,000
b. 320,000 d. 500,000
(AICPA)
15. The Central Plains Subdivision sells residential subdivision lots on installment basis. The
following information was taken from the companys records as at December 31, 2008.
Installment Accounts Receivable:
January 1, 2008 -------------------------------------- P755,000
December 31, 2008 --------------------------------- 840,000
Unrealized Gross Profit, January 1, 2008 ----------------- 339,750
Installment Sales -------------------------------------------- 950,000

How much is the balance of Unrealized Gross Profit as at December 31, 2008?

a. P378,000 c. P427,500
b. 339,750 d. 389,250
(PhilCPA)
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 --------------- P600,000

Installment sales for 2008 ------------------------------------- 1,050,00
Gross profit on sales ------------------------------------------- 40%
 Under the installment method, Gemas deferred gross profit at December 31, 2008 will
be
a. P360,000 c. P240,000
b. 270,000 d. 180,000
(AICPA)
17. Vic Corporation, which began business on January 1, 2007, appropriately uses the
installment method of accounting. The following data are available:

12/31/2007 12/31/2008
Balance of deferred gross profit on sales account:
2007 ------------------------------------------- P300,000 P120,000
2008 ------------------------------------------ 440,000
Gross profit rate on sales --------------------------- 30% 40%

The installment accounts receivable balance at December 31, 2008 is

a. P1,000,000 c. P1,400,000
b. 1,100,000 d. 1,500,000

18. Cente, Inc. appropriately uses the installment method of accounting to recognize income
in its financial statements. Some pertinent data relating to this method of accounting
include:
2006 2007 2008

Installment sales -------------------- P300,000 P375,000 P360,000

Cost of installment sales ----------- 225,000 285,000 252,000

Gross profit -------------------------- P 75,000 P 90,000 P108,000

Rate of gross profit on installment

Sales ------------------------- 25% 24% 30%

2006 2007 2008

Balance of deferred gross profit
at the year end: From 2006 sales P52,500 P15,000 P -
From 2007 sales 54,000 9,000
From 2008 sales 72,000
Total ---------------------------------
P52,500 P69,000 P81,000

What amount of installment accounts receivable should be presented in Centes

December 31, 2008 balance sheet?

a. P270,000 c. P279,000
b. 277,500 d. 300,000
 (AICPA)
19. The following selected accounts appeared in the trial balance of Union Sales as of
December 31, 2008:

Debit Credit
Installment Receivable 2007 sales --------- P 15,000 P
Installment Receivable 2008 sales --------- 200,000
Inventory, December 31, 2007 --------------- 70,000
Purchases ---------------------------------------- 555,000
Repossession ------------------------------------ 3,000
Installment Sales -------------------------------- 425,000
Sales (Regular) ---------------------------------- 385,000
Unrealized Gross Profit 2007 ----------------- 54,000
Additional information:
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 yea. It was a 2007 sale
and the corresponding uncollected account at the time
of repossession was P7,750.
(1) The total realized gross profit on installment sales in 2008, and (2) gain (loss)
on repossession in 2008:

a. (1) P129,262.50; (2) P(1,262.50)

b. (1) 85,500.00; (2) (1,262.50)
c. (1) 129,262.50; (2) 1,262.50
d. (1) 85,500.00; (2) 1,262.50
(PhilCPA)

20. 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:

2007 2008
Installment sales -------------------------------- P400,000 P500,000
Cost of installment sales ----------------------- 240,000 350,000
Cash collected on installment sales
2007 installment contracts ------------ 210,000 150,000
2008 installment contracts ------------ - 300,000
Additional information:

On January 5, 2009 an installment sale in 2007 was defaulted and the

merchandise with an appraised value of P5,000 was repossessed. Related
installment receivable balance on January 5, 2009 was P8,000.
 (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 c. (1) P 76,000; (2) P1,800

b. (1) 76,000; (2 ) 200 d. (1) 130,000; (2) (200)
(PhilCPA)

21. Jane Enterprises uses the installment method of accounting and it has the following data
at the year-end:

Gross margin cost ------------------------------------------------------ 66-2/3%

Unrealized gross profit ------------------------------------------------ P192,000
Cash collections including down payments ------------------------ 360,000
What was the total amount of sales on initial basis?

a. P480,000 c. P648,000
b. 552,000 d. 840,000
(PhilCPA)
22. The Cindy, Inc. began operating at the beginning of the calendar year 2008 and, using
the installment method of accounting, presented the following data for the first year:

Installment sales ---------------------------------------------------- P400,000

Gross margin based on cost --------------------------------------- 66-2/3%
Inventory, Dec. 31, 2008 ------------------------------------------ 80,000
General and administrative expenses ---------------------------- 40,000
Accounts receivable, Dec. 31, 2008 ----------------------------- 320,000
The balance of the deferred gross profit account, end of 2008 should be:

a. P192,000 c. P96,000
b. 128,000 d. 80,000
(PhilCPA)
23. These data pertain to installment sales of Koster Store:

- Downpayment: 20%
- Installment sales: P546,000 in 2006; P785,000 in 2007; and, P968,000 in
2008
- Mark-up on cost: 35%
- Collections after down payment: 40% in the year of sale, 35% in the year
after, and 25% in the third year.
Compute the (1) Installment Accounts Receivable at the end of 2008, and (2) total
unrealized gross profit at the end of 2008.
a. (1) P621,640; (2) P217,547 c. (1) P464,640; (2) P161,166
b. (1) 464,640; (2) 217, 574 d. (1) P621,640; (2) 161, 166
(PhilCPA)
24. On January 2, 2008, the following are some data of the Claire Hills Subdivision, a fully-
developed subdivision which started sales in 2008. All sales are on five year installment
plan. The sales terms provide for a 15% downpayment , with the balance payable in 60
 monthly installments. An interest of 12% per annum on the unpaid amount is to be paid
with the monthly installments.

Area of subdivision:

200 subdivision lots, various sizes -------------------------- 52,250 Sq. M.

Road lots -------------------------------------------------------- 23,750 Sq. M.
Parks, reserved for public use -------------------------------- 4,000 Sq. M.

Total ------------------------------------------------------------- 80,000 Sq. M.

Cost of subdivision

Cost of raw land, 80,000 sq. m. ----------------------------- P2,375,000

Surveying and laying monuments -------------------------- 45,000
Filling and leveling sub-grade land ------------------------ 130,000
Curbs, gutters, and drainage -------------------------------- 310,000
Road bracing, filling, and paving -------------------------- 2,175,000
Electric light posts and lines -------------------------------- 190,000

Total --------------------------------------------------------- P5,225,000

The total selling price of the 200 subdivsion lots, per the price lists, is P9,500,000.

Total installment sales in 2008 --------------------------- P3,450,000

Installment receivable, Dec. 31, 2008 ------------------- 1,594,600
Interest income in 2008 ------------------------------------ 520,300
Operating expenses in 2008 ------------------------------- 682,130

Compute the (1) unrealized gross profit on December 31, 2008, and (2) the net income
for 2008.

a. (1) P717,570; (2) P1,355,230 c. (1) P 877,030; (2) P673,100

b. (1) 717,570; (2) 673,100 d. (1) 1,552,500; (2) 1,355,230
(PhilCPA)

25. The Jaja Sales Co. which began the appliances business on January 1, 2006 reports gross
profit on the installment basis. The following information relative to the installment sales
are available:

2006 2007 2008

Installment sales ---------------------- P360,000 P375,000 P450,000

Cost of installment sales ------------- 270,000 271,875 324,000

Gross profit ---------------------------- P90,000 103,125 126,000

 Collections:
2006 installment contracts -- P67,500 P112,500 P108,750
2007 installment contracts -- 71,250 120,000
2008 installment contracts -- 93,750

Defaults:
Unpaid balance of 2006
installment contracts -- P 18,750 P 22,500
Value assigned to repossessed
merchandise ----------- 9, 750 9,000
Unpaid balance of 2007
installment contracts -- 24,000
Value assigned to repossessed
merchandise ----------- 13,500

(1)The realized gross profit on installment sales during 2008, and (2) the loss on
repossession during the year 2008:

a. (1) P86,437.50; (2) P12,225 c. (1) P86,437.50; (2) P11,775

b. (1) 90,300.00; (2) 11,775 d. (1) 88,687.50; (2) 34,275
(PhilCPA)

26. The Mercy Sales Co. employs the perpetual inventory basis in its accounting for new
cars. On August 15, 2007, a new car was sold to Rose Castro with a list price of P220,000
costing P165,000. It granted Ms. Castro an allowance of P85,000 for her old car as a
trade-in, the current value of which was estimated to be P81,700. The balance of
P135,000 was payable as follows: Cash at time of purchase P35,000, balance in 20
monthly payment of P5,000, first payment being made on September 1, 2007. On April
1, 2008, Ms. Castro defaulted in the payment of March 1, 2008 installment. The new car
sold was repossessed; its value to the seller is P40,000. (use two decimal places for gross
profit percentage)

(1) The total realized gross profit on installment sales in 2007 and (2) gain (loss) on
repossession in 2008.

a. (1) P32,617; (2) P(15,811) b. (1) P32,617; (2) P(13,298)

c. (1) 37,889; (2) (13,298) d. (1) 87,966; (2) 13,298
(PhilCPA)

27. Gianne Co., sold a computer on installment basis on October 1, 2008. The unit cost to
the company was P86,400, but the installment selling price was set at P122,400. Terms
of payment included the acceptance of a used computer with a trade-in allowance of
P43,200. Cash of P7,200 was paid in addition to the traded-in computer with the balance
to be paid in ten monthly installments due at the end of each month commencing the
month of sale.
 It would require P1,800 to recondition the used computer so thet it could be resold for
P36,000. A 15% gross profit was usual from the sale of used computer. The realized gross
profit from the 2008 collections amounted to:

a. P 5,760 c. P11,520
b. 14,100 d. 48,960
(Adapted)

28. Following data pertain to Mabait Company which sells appliances on the installment
basis:
2006 2007 2008
Installment SalesP390,000 P 420,000 P480,000
Cost of Sales.. 237,900 243,600 288,000

From Sales Made in

2006 2007 2008
Installment Accounts
Installment balances:
Jan. 1, 2008P24,000 P300,000
Dec. 31, 2008 - 60,000 P320,000

Repossessions on defaulted accounts were made during 2008, as follows:

From Sales Made In

2007 2008

Account balances. P10,000 P5,000

Appraised value of repossessed
Merchandise 4,500 3,500

(1) The total realized gross profit on installment sales in 2008, and (2) net gain (loss) on
repossession on defaulted contracts of 2007 and 2008.

29. Mr. Matias is a dealer in appliance who sells on an installment basis. A refrigerator which
originally cost P9,240 was sold by him for P16,500 to Jose who made a down payment
of P2,200, but defaulted in subsequent payments.

Mr. Matias repossessed the refrigerator at an appraised value of P4,600. To improve its
salability, he expended P600 for reconditioning. He was able to sell the refrigerator to Pedro
for P10,000 at a down payment of the first installment of P2,500.

The realized gross profit from the (1) first installment sale-Jose: (2) from the second
installment sale-Pedro are:

a. (1) P968; (2) P1,350 c. (1) P968; (2) P1,200

b. (1) 264; (2) 1,200 d. (1) 2,304; (2) 1,350
30. The Molino Furniture Company appropriately used the installment sales method in
accounting for the following installment sale. During 2008, Molino sold furniture to an
individual for P3,000 at a gross profit of P1,200. On June 1, 2008, this installment
account receivable had a balance of P2,200 and it was determined that no further
collections would be made. Molino, therefore, repossessed the merchandise. When
reacquired, the merchandise was appraised as being worth only P1,000. In order to
improve its salability, Bengal inccured costs of P100 for reconditioning. Normal profit on
resale is P200. What should be the loss on repossession attributable to this
merchandise?

a. P220 c. P320
b. 620 d. 880
(Adapted)

31. Marceliano Sales Corp. accounts for sales on the installment basis. The balances of the
Control accounts for installment Contracts Receivable at the beginning and end of 2008
were:

Jan. 1, 2008 Dec. 31, 2008

Installment Contracts Receivable- 2006 .. P 24,020
Installment Contracts Receivable- 2007 .. 344,460 P67,440
Installment Contracts Receivable- 2008 .. - 410,090

During 2008, the company repossessed a refrigerator which had been sold in
2007 for P5,400 and P3,200 had been collected prior to default. The company sales
and cost of sales figures are summarized below:

2006 2007 2008

Net Sales. P380,000 P432,000 P602,000

Cost of Sales... 247,000 285,120 379,260

Marceliano Sales Corp. values the repossessed goods at market value. The resale price of
the repossessed merchandise amounted to P1,700.

(1) The gain (loss) or repossession; and (2) the total realized gross profit on
installment sales for the year 2008:
a. (1) P(381); (2)P172,852.50 c. (1) P248; (2)P172,852.50
b. (1) (381); (2) 71,006.70 d. (1) 248; (2) 71,006.70

32. Gizelle, Inc. started operation at the beginning of 2008, selling home appliances
exclusively on the installment basis. Data for 2007 and 2008 follows:

2007 2008
Installment sales. P 600,000 P750,000
Cost of installment sales. 420,000 450,000
 2007 installment accounts, end 285,000 22,500
2008 installment accounts, end - 300,000

On May 31, 2008, a 2007 installment account of P37,500 was defaulted and the appliance
was repossessed. After reconditioning at a cost of P750, The repossessed appliance would
be priced to sell for P30,000.

The gain (loss) on repossession amounted to:

a. P 3,000 c. P 9,000
b. (9,000) d. (3,750)

(Adapted)

33. Since there is no reasonable basis for estimating the degree of collectibility. Bloopers
Company uses the installment method of revenue recognition for the following sales:

2008 2007
Sales P450,000 P300,000
Collection from:
2007 sales.. 50,000 100,000
2008 sales.. 150,000 -0-
Accounts written-off:
2007 sales.. 75.000 25,000
2008 sales.. 25,000 -0-
Gross profit percentage 40% 30%

What amount should Bloopers report as deferred gross profit in its December 31, 2008,
balance sheet for the 2007 and 2008 sales?

a. P75,000 c. P112,500
b. 80,000 d. 125,000

34. James Smith Appliance Co., sold an equipment costing P10,000 for P16,000 on
September 30, 2007. The down payment was P1,600 and the same amount was to be
paid
at the end of each succeeding month. Interest was charged on the unpaid balance of the
contract at of 1% a month, payments being considered as applying first to accrued
interest and the balance to principal.
After paying a total of P6,400, the customer default. The equipment was repossessed in
January 5, 2008. It was estimated that the equipment had a value of 5,600.

Compute the (1) total realized gross profit on installment sales and (2) the gain (loss) on
repossession (rounded)
 a. (1) P2,328; (2) P521 c. (1) P2,400; (2) P (400)
b. (1) 2,400; (2) 400 d. (1) 2,328; (2) (521)

35. On September 30, 2008, Barry bought a car for P3,600,000. A down payment of
P1,600,000 was made, with the balance due in 10 monthly installments, the first to be
made at the end of October. Barry is to make monthly payments of P200,000 plus
interest on the unpaid balance at 12%. What is the total collection on January 31, 2009?

a. P200,000 c. P216,000
b. 214,000 d. 218,000

36. Using the same information in No. 35 and Barry is to make equal monthly payments,
each payment to apply first as interest at 12% on the unpaid principal and the balance as
a reduction in principal, such equal payments are calculated to be P211,164.15. What is
the unpaid balance of the installment receivable on January 31, 2009?

a. P1,000,000 c. P1,223,796.90
b. 1,200,000 d. 1,420,753.51

37. Using the same information in No. 35, what is the approximate effective interest rate if
monthly payments of P200,000 plus interest at 12% charged on the original principal
amount of P360,000?

a. 10% c. 32.73%
b. 12% d. 39.38%

38. Sharon Company uses the installment sales method in accounting for its installment
sales.
On January 1,2008, Sharon Company had an installment account receivable from
Rowena with a balance of P18,000. During 2008, P4,000 was collected from Rowena .
When no further collection could be made, the merchandise sold to Rowena was
repossessed. The merchandise had a fair market value of P6,500 after the company
spent for P600 for reconditioning of the merchandise. The merchandise was originally
sold with a gross profit rate of 40%.

Determine the gain or loss on repossession and Cost of Repossessed Merchandise,

Respectively;

a. P2,500 loss; P6,500 c. P2,500 gain; P5,900

b. P2,100 loss; P6,500 d. P2,100 gain; P5,900

(Adapted)

39. The following table are available for Charo Company:

2006 2007 2008
Installment sales......... P50,000 P80,000 P ?
 Cost of installment sales. ? ? 91,800
Gross profit ? ? 28,200
Gross profit percentage... ? 25% ?
Cash collections
2006 sales.. ? 25,000 10,000
2007 sales.. ? 20,000 50,000
2008 sales.. ? 45,000
Realized Gross Profit on Installment Sales 1,100 10,500 ?

Using installment method, compute the realized gross profit in 2008:

a. P 10,575 c. P 2,200
b. 12,500 25,275

40. On January 1, 2007, Janette Company sold 20,000 square meters of farmland for
P600,000 to Michelle, taking in exchange a 10% interest bearing note Janette Company
purchased the farmland in 2007 at a cost of P500,000. The note will be paid in three
installments of P241,269 including interest each on December 31, 2007, 2008, and 2009.
Shortly, after the sale Janette Company learns distressing news about Michelles financial
circumstances and because collection is so uncertain and decides to account for the sale
using the cost recovery method.
Determine the Realized Gross Profit and Interest Income for the year 2008, and
Uncovered Cost as of December 31, 2008, respectively.

a. P -0-: P -0-; P -0-

b. P -0-: P -0-; P 17,462
c. P -0-: P60,000; P177,462
d. P33,233; P -0-; P -0-
(Adapted)

41. On June 1, 2008, the Foster Company sold inventory to the Ushman Corporation for
P400,000. Terms of the sale called for a down payment of P100,000 and four annual
installments of P75,000 due on each June 1 beginning June 1, 2009. Each installment
also include interest on the unpaid balance applying an appropriate interest rate. The
inventory cost Foster P150,000. The company uses the perpetual inventory system.
Compute the amount of gross profit to be recognized in 2008. (Ignore interest charges).

Point-of-Delivery Installment Cost

Method Method Recovery Method
a. P250,000 P62,500 P250,000
b. -0- 250,000 62,500
c. 62,500 250,000 -0-
d. 250,000 62,000 -0-

42. Johnson Enterprises uses the cost recovery method for all installment sales.
Complete the following table:

2006 2007 2008

 Installment sales.. P80,000 P95,000 P?
Cost of installment sales. ? 56,050 68,250
Gross profit percentage 38% ? 35%
Cash collections:
2006 sales 25,600 46,400 5,600
2007 sales 22,800 ?
2008 sales 32,550
Realized Gross Profit on Installment Sales ? ? 16,050

The installment sales in 2008:

a. P92,137.50 c. P112,612.50
b. 105,000.00 d. 195,000.00

(Adapted)

43. Using the name information in No. 42, the cost of installment sales in 2006;

a. Zero c. P47,619
b. P30,400 d. 49,600

44. Using the same information in No. 42, the cost of installment sales in 2006.

a. 29% c. 69%
b. 41% d. Cannot be determined

45. Using the same information in No. 42, the collections in 2008 for 2007 sales:

a. P10,450 c. P43,700
b. 33,250 d. 48,600

46. Using the information in No. 42, the realized gross profit on installment sales in 2006;

a. P9,728 c. P4,800
b. 7,049 d. Zero

47. Using the information in No. 42, the realized gross profit on installment sales in 2007.

a. P8,664 c. P18,012
b. 9,348 d. 22,400

(with Present Value Factor)

Items 48 through 53 are based on the following information:
Pampanga Industrial sells machinery on the installment plan. On September 1, 2008,
Pampanga entered into an installment sale contract with GMA Productions for a six-
Year period. Equal annual payments under the installment sale are P187,500 and are
due on August 31 of each year beginning in 2009.
 Additional information:
(a) The cost of the machinery sold to GMA was P637,500.
(b) The implicit interest rate on the installment sale is 10%.

Pampanga Industrial uses calendar year as a result of the above transaction and use
effective-
Interest rate method of amortizing any discount.
The present value factors at 10% for six periods are as follows:

Year PV of PI PV of an annuity of PI
1 .9091 .9091
2 .8264 1.7355
3 .7513 2.4869
4 .6830 3.1699
5 .6209 3.7908
6 .5645 4.3553

48. Assuming that circumstances are such that the collection of the installments due under the
Contract is reasonably assured, compute the realized gross profit on installment sales for
2008 (rounded):

a. Zero c. P179,119
b. P81,250 d. 487,500

49.Using the same information in No. 48, compute the total income for 2008 (rounded):

a. P27,221 c. P206,340
b. 108,471 d. 541,721
50.Using the same information in No. 48, compute the total income for 2009 (rounded):

a. P71,221 c. P206,340
b. 108,471 d. 257,433
51.Assuming that circumstances are such that the collection of the installments due under
the contract cannot be reasonably assured, compute the realized gross profit on
installment sales for 2008 (rounde):

a. Zero c. P179,119
b. P81,350 d. 487,500

52.Using the same information in No.51, compute the total income for 2008 (rounded):

a. P27,221 c. P206,340
b. 108,471 d. 541,433

53. Using the same information in No. 51, compute the total income for 2009 (rounded):

a. P78,134 c. P102,194
 b. 101,418 d. 119,384

54. Romer Realty bought two adjoining lots (Lot A and B) with a total area of 1,600 sq.m.
Lot A was bought for P160,000 IN 2003 and Lot B was bought for P240,000 in 2004.
Romer Realty resubdivided the two lots and made a 400 sq.m. lot out of the original two
lots
by taking 200 sq. m. from each to make Lot C. The cost of Lot C was by allocating a portion
of the cost of the original two lots. Romer Realty build a house on Lot C at a cost of
P152,000. It was complicated on June 30, 2008 and had an estimated useful life of 20 years.
The three lots and house were sold during 2008 on the following terms:

Date Sales Down

Lot of Sale price Payment Balance
Lot A. Mar. 31 P171,428 P51,428 P120,000
Lot B. Oct. 31 240,000 80,000 160,000
Lot C & House.. June 30 420,000 180,000 240,000

Balance, Payable
Equal installment

Lot A. P12,000 every 3 months

Lot B. P20,000 every 2 months
Lot C & House.. P40,000 every 6 months

Installment payment is to be applied first to accrued interest and the balance to a reduction
of
principal. The rate of interest is 10% p.a. on the carrying balance of the principal.

After repeated demand from the buyer of Lot C and house, he failed to meet the installment
Due on June 30,2009, and the property was repossessed.

The realized gross profit from the sale of the lots and house on December 31, 2008 are:

Lot A Lot B Lot C & House Total

a. P23,733.33 P25,333.33 P78,300 P127.366.66
b. P24,333.33 P24,533.33 P86,700 P135,566.66
c. P23,732.58 P24,333.33 P83,200 P131,265.91
d. P24,733.33 P25,333.33 P86,500 P136,566.66

55. Jade Co. has been using the cash method to account for income since its first year of
operation in 2007. All sales made on credit with notes receivable given by customers.
The balances due on the notes, at the end of each year, were as follows;

2007 2008
Notes receivable 2007 P108,000 P72,000
Notes receivable 2008 120,000
* Discount on notes receivable 2007. 14,000 12,000
* Discount on notes receivable 2008. 16,000
 *Discount on notes receivable is popularly known as unearned interest
income.

The income statements for the years 2007 and 2008 included the following amounts;

2007 2008
Revenue collections on principal.... P64,000 P100,000
Revenue - interest. 7,000 11,000
Cost of goods purchased*.. 100,000 105,250

*Includes increase in inventory-

P10,000 IN 2007 & P16,000 IN 2008.
Compute the realized gross profit for the year (1) 2007, and (2) 2008 assuming the use of
Installment method of accounting:

a. (1) P27,200; (2) P45,800 c. (1) P27,200; (2) P37,378

b. (1) 23,149; (2) P37,378 d. (1) 23,149; (2) 45,800

56. The Aria Motors Company makes all sales on installment contracts and accordingly reports
income on the installment basis. Installment contracts receivables are accounted for by
years. Defaulted contracts are recorded by debiting Loss on Repossession account and
crediting the appropriate Installment Contract Receivable account for the unpaid balance at
the time of default. All repossessions and trade-ins are recorded at realizable values. The
following data relate to the transactions during 2007 and 2008.

2007 2008
Installment sales.. P150,000 P198,500
Installment contract receivable.12/31
2007 sales . 80,000 25,000
2008 sales . 95,000
Purchases. 100,000 120,000
New merchandise inventory, 12/31 at cost 10,000 26,000
Loss on repossessions.. 6,000

The company auditor disclosed that the inventory taken on December 31, 2008 did not
Include certain merchandise received as trade-in on December 2, 2008 for which an
allowance was given. The appraised value of 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
 repossession.

a. (1) P70,000; (2) P 100 c. (1) P50,400; (2) P(1,100)

b. (1) 70,000; (2) (1,100) d. (1) 19,600; (2) 3,500

57. On January 1, 2007 Blue Company commenced its sales of gas stoves. Separate accounts
were set up for installment and cash sales, but perpetual inventory record was not kept. On
the installment sales a down payment of 1/3 was required, with the balance payment 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 balance were charged to a bad debts expense account, and sales of repossessed
merchandise were credited to this account. At the end of the year the expense account was
adjusted to reflect the actual loss.

The transactions of the Blue Company are as follows:

Sales: 2007 2008

New gas stoves for cash . P27,000 P 37,000
New gas stoves on installment
(including the 1/3 cash down payment) 235,000 330,000
Repossessed gas stove. 750 875
Purchases. 193,000 215,000
Physical inventories at December 31:
New gas stoves at cost 45,500 600,000
Repossessions at appraised value 180 200
Unpaid balances of installment contracts default;
2007 sales 3,580 4,650
2008 sales - 3,750
Cash collections on installment contracts;
exclusive of down payments:
2007 sales 54,000 77,000
2008 sales - 70,000

Compute the (1) balance of Installment Accounts Receivable-2007 on December 31, 2008,
and (2) The realized gross profit for the year 2008.

a. (1) P17,437; (2) P114,880 c. (1) P22,087; (2) P131,500

b. (!) 17,437; (2) 131,530 d. (1) 22,087; (2) 114,880

58. The trial balance of Dumaguete Appliance Corporation as of the end of the fiscal year on
September 30, 2008 is:

Debit Credit
 Accounts receivable. P100,000
Accounts payable. P100,000
Allowance for depreciation. 33,750
Capital stock 125,000
Cash .... 46,250
Deferred gross profit-2007 50,000
Equipment. 112,500
Installment contract receivable-2007 12,500
Installment contract receivable-2008 150,000
Installment sales 375,000
Inventory, Sept. 30, 2007.. 62,500
Loss on repossessions 3,750
Prepaid expenses 3,750
Purchases 435,000
Repossessions 2,500
Retained earnings.. 30,000
Sales.. 312,500
Selling and administrative expenses. 97,500
Total. P1,026,250 P1,026,250

The po9st-closing trial balance on Sept. 30, 2007 shows the following balances of certain
accounts:

Installment contract receivable -2007.......... P100,000

Deferred gross profit-2007 50,000

The gross profit percentage on regular sales during the year was 30%.

The accountant made the following entry for a repossession on a sale of 2007 towards the
end of fiscal year:

Repossessions P2,500
Loss on repossessions... 3,750
Installment contract receivable-2007 P6,250

The inventory of new and repossessed merchandise on Sept. 30, 2008 amounted to P75,000.
The total realized gross profit for the fiscal year September 30, 2008.

a. P141,875 c. P93,750
b. 101,250 d. 235,625

59. Using the same, information in No. 58 the correcting entry for repossession made on a sale
of 2007 is:

a. Deferred gross profit 2007.. 3,125

Loss repossession.. 3,125
b. Deferred gross profit- 2007 3,750
Loss on repossession.. 3,750
 c. Loss on repossession.. 3,125
Installment contract recble- 2007 3,125
d. No entry necessary

60. Using the same information in No.58, compute the net income for the fiscal year September
30, 2008:

a. P235,000 c. P235,625
b. 138,000 d. 137,500