Installment Sales Reviewer. Problems and Solutions.

Chapter 4
Installment Sales
Installment sales problems have appeared very often in the CPA exam. Therefore, candidates
should be familiar with the accounting techniques applicable to this topic.
When a sale is made on the installment basis, the buyer usually makes a down payment and
promises to pay the balance in regular installments over a specified period of time. Profit on
installment sales is recognized only when earned. Although there are several theoretical points
at which the profit can be assumed to be earned, for CPA examinations purposes, the choice is
generally limited to the installment method.
Installment Method
Under this method, income is recognized only when collections are made. Problems requiring
the use of the installment method of recognizing income have appeared quite regularly in the
CPA exam. The following are the typical problems often encountered in the CPA exam:
1. Computation of Gross Profit Rate for each year of sales.

2. Computation of Realized Gross Profit for each year of sales.
3. Computation of Deferred Gross Account balance at the end of year.
4. Computation of Gain or Loss on repossessions.
Computation of Gross Profit Rate
To compute the realized gross profit in proportion to the collections made, it is necessary to
determine the gross profit rate for each years operations. The following are the formulas in
computing gross profit rate:
Gross Profit
Current year sales: Gross Profit Rate =
Installment Sales
Prior year sales:
Deferred Gross Profit (Beg.) Prior Year Sales

Gross Profit Rate =
Installment Accounts Receivable (Beg.) Prior Year Sales
Computation of Realized Gross Profit
Once the gross profit rates are known, it is possible to compute the realized gross profit based
on cash collections. The formula to be used is:
Realized Gross Profit = Collections (excluding interest) x Gross Profit Rate (based on sale)
Missing Factors. In as much as the realized gross profit under the installment method depends
upon cash collections of receivables, it is important that the amounts collected must be known.
However, in some problems, the collections are not specifically stated. Such collections must be
reconstructed from related information available from the data given. The candidate should
remember the following format in computing the collections:
Current Prior
Year Year
Sales Sales
Installment accounts receivable beginning xx xx
Installment accounts receivable end (xx) (xx)
Total credits xx xx
Credit for repossessions (unpaid balance) (xx) (xx)
Credit for installment A/C written off (xx) (xx)
Credit representing collections xx xx
Computation of Deferred Gross Profit, End
To compute the balance of Deferred Gross profit at the end of the year, the following formula
may be used:
Installment Account Receivable End x GPR = Deferred Gross Profit End

Or
Deferred Gross Profit before adjustment xx
Less: Realized gross profit xx
Deferred Gross Profit - End xx
Computation of Gain or Loss on Repossession
If a customer does not make an installment payment at the specified time, it is necessary to
repossess the merchandise in order for the seller to minimize his loss.
The gain or loss on repossession is computed as follows:
Fair value of repossessed merchandise xx

Less: Unrecovered cost -
Unpaid balance xx
Less: deferred gross profit (unpaid balance x GP rate) xx xx
Gain (loss) on repossession xx
The fair value of repossessed merchandise at the time of repossession should be before
reconditioning cost and before adding a normal gross profit from sale of repossessed
merchandise.
Trade In
This type of installment sales used by car dealers, whereby an old car is received as down
payment from the buyer for sale of the new car. Usually the old car traded-in is overvalued to
induce the trade-in. for problem solving purposes the overvaluation is computed using a
formula below:
Trade-in value allowed on the old car Pxx

Less: Actual value
Estimated selling price Pxx
Less: Normal gross profit from the sale of used car Pxx
Reconditioning costs xx xx xx
Overallowance on the old car Pxx
The overallowance is treated as a deduction from the selling price of the new car. When there
is overallowance on the old car traded-in, the gross profit rate is computed as follows:
Gross profit Net Sales (net of overallowance)
The realized gross profit is also computed as follows:
Collections (cash + actual value of old car) x GPR

PROBLEMS
1. Oro Company began operations on January 1, 2012 and appropriately uses the
installment sales method of accounting. The following data are available for 2012 and
2013:
2012 2013
Installment sales P1,500,000 P1,800,000
Gross profit on sales 30% 40%
Cash collections from:
2012 sales 500,000 600,000
2013 sales - 700,000
The realized gross profit for 2013 is:
a. P720,000
b. 520,000
c. 460,000
d. 280,000
2. Roco Corp., which began business on January 1, 2013, appropriately uses the
installment sales method of accounting for income tax reporting purposes. The
following data are available for 2013:
Installment accounts receivable, 12/31/2013 P200,000

Installment sales for 2013 350,000
Gross profit on sales 40%
Under the installment method, what would be Rocos deferred gross profit at December
31, 2013?
a. P20,000
b. 90,000
c. 80,000
d. 60,000
3. Gray Co., which began operations on January 1, 2013, appropriately uses the installment
method of accounting. The following information pertains to Gray operations for the
2013:
Installment sales P500,000

Regular sales 300,000
Cost of installment sales 250,000
Cost of regular sales 150,000
General and administrative expenses 50,000
Collections on installment sales 100,000
In its December 31, 2013 statement of financial position, what amount should Gray
report as deferred gross profit?
a. P250,000
b. 200,000
c. 160,000
d. 75,000
4. Filstate Co. is a real estate developer that began operations on January 2, 2013. Filstate
appropriately uses the installment method of revenue recognition. Filstate sales are
made on the basis of a 10% downpayment, with the balance payable over 30 years.
Filstate gross profit percentage is 40%. Relevant information for Filstate first year of
operations is as follows:
Sales P16,000,000
Cash collections 2,020,000
The realized gross profit and deferred gross profit at December 31, 2013 are:
a. P808,000 and P5,592,000

b. 5,040,000 and 808,000
c. 5,600,000 and 808,000
d. 808,000 and 6,400,000
5. Long Co., which began operations on January 1, 2013, appropriately uses the installment
method of accounting. The following information pertains to Longs operations for the
year 2013:
Installment sales P1,000,000

Regular sales 600,000
Cost of regular sales 300,000
What is the total comprehensive income on December 31, 2013?
a. P400,000
b. 200,000
c. 300,000
d. 100,000
6. Kiko Co. began operations on January 1, 2013 and appropriately uses the installment
method of accounting. The following information pertains to Kikos operations for 2013:

The balance in the deferred gross profit account at December 31, 2013 should be:
a. P120,000
b. 150,000
c. 200,000
d. 320,000
7. Tayag Corp., which began operations in 2013, accounts for revenues using the
installment method. Tayags sales and collections for the year were P60,000 and
P35,000, respectively. Uncollectible accounts receivable of P5,000 were written off
during 2013. Tayags gross profit rate is 30%. On December 31, 2013, what amount
should Tayag report as deferred revenue?
a. P10,500
b. 9,000
c. 7,500
d. 6,000
8. Laya Corp., which began operations on January 2, 2013, appropriately uses the
installment sales method of accounting. The following information is available for 2013:
Installment accounts receivable, December 31, 2013 P800,000

Deferred gross profit, December 31, 2013
(before recognition of realized gross profit for 2013) 560,000
Gross profit on sales 40%
For the year ended December 31, 2013, realized gross profit on sales should be:
a. P320,000
b. 340,000
c. 320,000
d. 240,000
9. Dulce Co., which began operations on January 1, 2012, appropriately uses the
installment method of accounting to record revenues. The following information is
available for the years ended December 31, 2012 and 2013:
2012 2013
Gross profit realized on sales made in:
2012 150,000 90,000
2013 - 200,000
Gross profit percentages 30% 40%
What amount of installment accounts receivable should Dulce report in its December
31, 2013, statement of financial position?
a. P1,225,000
b. 1,300,000
c. 1,700,000
d. 1,775,000
10. On January 2, 2012, Black Co. sold a used machine to White, Inc. for P900,000, resulting
in a gain of P270,000. On that date, White paid P150,000 cash and signed a P750,000
note bearing interest at 10%. The note was payable in three annual installments of
P250,000 beginning January 2, 2013. Black appropriately accounted for the sale under
the installment method. White made a timely payment of the first installment on
January 2, 2013, of P325,000, which included accrued interest of P75,000. What amount
of deferred gross profit should Black report at December 31, 2013?
a. P150,000
b. 172,500
c. 180,000
d. 225,000
11. White Plains, Inc. sells residential lots on installment basis. The following data was taken
from the accounting records of the company as at December 31, 2013:
Installment accounts receivable, January 1 P755,000

Installment accounts receivable, December 31 840,000
Deferred gross profit, January 1 339,750
Installment sales 950,000
Complete (1) the realized gross profit on December 31, 2013 and (2) the balance of the
Deferred Gross Profit account on December 31, 2013.
a. (1) P389,250; and (2) P378,000

b. (1) 427,500; and (2) 389,250
c. (1) 330,750; and (2) 427,000
d. (1) 378,000; and (2) 339,750
12. In August, 2012, Mega World Inc. sold condominium units costing P1,440,000 for
P2,400,000 receiving P350,000 cash and a mortgage note for the balance payable in
monthly installments. Installment received in 2010 reduced the principal of the note to
a balance of P2,000,000. The buyer defaulted on the note at the beginning of 2013, and
the property was repossessed. The property had a fair market value of P1,150,000 at
the time of repossession.
Compute the gain (loss) on repossession if (1) profit is recognized at the point of sale
and (2) gross profit is recognized in proportion to collections.
a. (1) P(850,000); and (2) P(50,000)

b. (1) (850,000); and (2) (450,000)
c. (1) 850,000; and (2) (450,000)
d. (1) (50,000); and (2) 50,000
13. Sarao Motors sells locally manufactured jeeps on installment basis. Data presented
below related to the companys operations for the last three calendar years:
2013 2012 2011

cost of installment sales P8,765,625 P7,700,000 P4,950,000
Gross profit rates on sales 32% 30% 38%
Installment accounts receivable, 12/31:

From 2013 sales 9,728,125
From 2012 sales 3,025,000 8,387,500
From 2011 sales 1,512,500 4,812,500
On December 31, 2013 how much is the (1) total realized gross profit and (2) deferred
gross profit?
a. (1) P3,044,250; and (2) P4,020,500

b. (1) 3,044,250; and (2) 4,125,000
c. (1) 3,733,750; and (2) 4,020,500
d. (1) 6,993,250; and (2) 4,020,500
14. Polo Company appropriately uses the installment sales method of recognizing revenue.
On December 31, 2013, the accounting records show unadjusted balances of the
following:
Installment accounts receivable 2011 P12,000

Installment accounts receivable 2012 40,000
Deferred gross profit 2011 10,500
Gross profit rates:
2011 35%
2012 34%
2013 32%
For the year ended December 31, 2013, compute (1) total realized gross profit and (2)
the total cash collections in 2013:
a. (1) P182,000; and (2) P135,400

b. (1) 76,000; and (2) 233,000
c. (1) 158,000; and (2) 368,400
d. (1) 106,000; and (2) 97,600
15. Bally Company, which began operations on January 2, 2013 appropriately, uses the
installment method of revenue recognition. The following data pertains to the
companys operations for the 2013:

Installment accounts receivable written off 50,000
What is the balance of Deferred Gross Profit account 2013 on December 31, 2013?
a. P500,000
b. 150,000
c. 400,000
d. 320,000
16. Nike Company, which began operations on January 5, 2012, appropriately uses the
installment method of revenue recognition. The following information pertains to the
companys operations for 2012 and 2013:
2012 2013
Sales P300,000 P450,000
Collections from:
2012 sales 100,000 50,000
2013 sales -0- 150,000
Accounts written off from
2012 sales 25,000 75,000
2013 sales -0- 150,000
Gross profit rates 30% 40%
What amount should Nike Company report as deferred gross profit in its December 31,
2013 statement of financial position?
a. P75,000
b. 80,000
c. 112,000
d. 125,000
17. The following accounts appeared in the accounting records of Adidas Sales Company as
of December 31, 2013:
Installment accounts receivable 2012 P15,000 Repossessions P3,000

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 P120,00

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) P960

b. (1) 129,510; and (2) 1,464
c. (1) 245,000; and (2) 960
d. (1) 85,500; and (2) 1,464
18. Mango Company, which sells appliances 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 2010 and 2011 accounting records:
2012 2013
Installment sales P480,000 P620,000
Gross profit rates based on cost 25% 20%
Cash collection on 2012 sales 130,000 240,000
Cash collection on 2013 sales 160,000
What is the amount of realized gross profit to be recognized on December 31,2013?
a. P124,500
b. P100,000
c. P92,000
d. P74,667
19. 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:
Revenues collection on principal P32,000
Revenues interes 3,600
Cost of goods purchases (includes 45,200
inventory of goods on hand P2,000)
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
20. Sta. Lucia Realty Corporation sells residential subdivision lots on installment basis. The
following data were taken from the companys accounting records as of December
31,2013. The company uses a uniform gross profit rate:
Installment accounts receivable:
January 1,2013 P1,510,000
December 31,2013 1,680,000
Unrealized gross profit January 1,2013 679,500
Installment sales 2012 1,180,000
Installment sales - 2013 1,900,000
How much is the gross profit realized during the year 2013?
a. P778,500
b. P679,500
c. P756,500
d. P630,500
21. The following information pertains to a sale of real estate by RR Co. to SS Co. on
December 31,2012:
Carrying amount P2,000,000
Sales price:
Cash P300,000
Purchase money mortgage 2,700,000 3,000,000
The mortgage is payable in nine annual installments of P300,000 beginning December
31,2013 plus interest of 10%. The December 31,2013 installment was paid as scheduled,
together with interest of P270,000. RR uses the cost recovery method to account for the
sale. What amount of income should RR recognize in 2013 from the real estate sale and
its financing?
a. P570,000
b. P370,000
c. P270,000
d. P0
22. Action Inc. sold a fitness equipment on installment basis on October 1,2013. The unit
cost to the company was P60,000 but the installment selling price was set at P85,000.
Terms of payment included the acceptance of a used equipment with a trade-in value of
P30,000. Cash of P5,000 was paid in addition to the traded-in equipment 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 P1,250 to recondition the used equipment so that it could be resold for
P25,000. A 15% gross profit was usual from sale of used equipment. The realized gross
profit from the 2013 collections amounted to
a. P4,000
b. P34,000
c. P10,000
d. P8,000
23. M & J Corp. which sells goods on installment basis, recognizes at year end gross profit
on collections which is consisted of cost and gross profit. It reported the following:
January 1 December 31
Installment receivables
2011 P120,100 0
2012 1,722,300 P337,200
2013 0 2,050,450
Sales and cost of sales for the three years are as follows:
2011 2012 2013
Sales P1,900,000 P2,610,000 P3,010,0000
Cost of sales 1,235,000 1,425,000 1,896,300
In 2013 the company repossessed merchandise with resale value of P8,500 from
customers who defaulted in payments. The sales were made in 2012 for P27,000 on
which P16,000 was collected prior to default. As collections are made, the company
debits cash and credits installment receivable. For default and repossessions, the
company debits installment receivable. The amount of adjustment on the inventory of
repossessed merchandise to the extent of the unrealized gross profit was
a. Zero
b. A decrease of P6,240
c. A decrease of P2,500
d. A decrease of P3,740
24. On October 2013, Haybol Realty Co. sold to Mae Balay a property for P500,000 which is
carried in its books for P250,000. The company received P100,000 on the date of the
sale and a mortgage note for P400,000 payable in twenty (20) semiannual installments
of P20,000 plus interest on the unpaid principal at 16% per annum.
The realized profit to be recognized by Haybol Realty Corp. in 2013 if gross profit is
recognized periodically in proportion to collections would be
a. P50,000
b. P100,000
c. P60,000
d. P250,000
25. Quincy Enterprises uses the installment method of accounting and has the following
data at year-end:
Gross margin on cost 66 2/3%
Unrealized gross profit P192,000
Cash collection including down payments 360,000
What was the total amount of sale on installment basis?
a. P480,000
b. P648,000
c. P552,000
d. P840,000
26. The Brownout, Inc. began operating at the start of the calendar year 2013 uses the
installment method of accounting:
Gross margin based on cost 66 2/3%
Inventory, Dec. 31,2013 80,000
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. P96,000
c. P128,000
d. P80,000
27. 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
Cost of installment sales 720 1,050
Collections on installment sales
2012 630 450
2013 0 900
On 7 January 2013, an installment sale account in 2010 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 wa

a. P218,400
b. P192,000
c. P360,000
d. P275,000
28. Four J Co. sold goods on installment. For the year just ended the following were
reported:
Cost of installment sales 2,025,000
Collections on installment sales 1,800,000
Repossessed accounts 200,000
Fair market value of repossessions 120,000
The gain(loss) on repossession is:
a. (P15,000)
b. P15,000
c. (P80,000)
d. P5,000
29. A refrigerator was sold to Fernandina Castro for P16,000, which included a 40% markup
on selling price. She made a down payment of 20%, payment of four of the remaining 16
equal payment and defaulted on further payments. The refrigerator was repossessed, at
which time the fair value was determined to be P6,800.
The repossession resulted to the following (loss) gain:

a. P(1,040)
b. P1,040
c. P4,056
d. P2,960
30. The Company uses the installment method of accounting to recognize income, Pertinent
data are as follows:
2011 2012 2013
Installment sales P300,000 P375,000 P360,000
Cost of sales 225,000 285,000 252,000
Balances of Deferred Gross Profit at Year end
2011 P52,500 P15,000 P-
2012 - 54,000 9,000
2012 - - 72,000
The total balance of the Installment Accounts Receivable on December 31,2013 is:
a. P270,000
b. P277,500
c. P279,500
d. P300,000
31. In its first year of operations, Guijo Companys sales were as follows:
Sales basis 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.
No. 31 Continued
If collections on installment sales during the year amounted to P240,000, how much was
the total gross profit realized at the end of the year?
a. P50,000
b. P60,000
c. P80,000
d. P230,000
32. A sale on installment basis was made in 2013 for P8,000 at a gross profit of P2,800. At
the end of 2013, when the installment account receivable had a balance of P3,500, it
was ascertained that the customer would be unable to make further payments. The
merchandise was then repossessed and was appraised at a value of P1,500. The loss on
repossession was:
a. P3,500
b. P2,000
c. P775
d. P1,775
33. On January 1,2012 Blim 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 of a down payment of 1/3 was required, with the balance
payable in 18 equal monthly installments.
The transactions of the Blim Company are as follows:

2012 2013
Sales:
New gas stoves for cash P27,000 P37,000
New gas stoves on installment
(including the 1/3 cash 235,000 330,000
down payment)
Purchases 193,000 215,000
Physical inventories at
December 31:
New gas stoves at cost 45,500 60,000
Cash collections on installment contracts, exclusive of down payments:
2012 sales 54,000 77,000
2013 sales - 70,000
No. 33 Continued
The realized gross profit for the year 2013 that would be reported on the income
statement amounted to:
a. P131,530
b. P140,000
c. P123,350
d. P131,500
34. The data below are taken from the records of Jess Appliance Co., which sells appliances
exclusively on the installment basis.
2011 2012 2013
Gross profit 36% 39% 40%
The balance in the Installment Accounts Receivable controlling accounts at the
beginning and end of 2013 were:
2013
From sales made in: January 1 December 31
2011 P17,400 P-
2012 205,400 25,800
2013 - 305,520
There was one repossession recorded during 2013, it related to a 2012 sale. The
repossessed appliance was sold at its fair value of P200, which equaled the uncollected
balance in the customers installment accounts receivable.
The total realized gross profit on prior year sales on December 31, 2013 and the gain
(loss) from the sale of the repossesses appliance are:
a. P76,230 and P(78)
b. P76,230 and P78
c. P69,966 and P78
d. P75,230 and P78
35. Mr. Matias Manuel is a dealer in appliance who sells on an installment basis. A
refrigerator which originally cost P924 was sold by him for P1,650 to Jose Santos who
made a down payment of P220, but defaulted in subsequent payments.
No. 35 Continued
Mr. Manuel repossessed the refrigerator at an appraised value of P460. To improve its
salability, he expended P60 for reconditioning. He was able to sell the refrigerator to
Pedro Reyes for P1,000 at a down payment of the first installment of P250.
The realized gross profit from the first installment sale (to Jose Santos) and from the
second installment sale (to Pedro Reyes) are:
a. P96.80 and P100
b. P26.40 and P120
c. P96.80 and P120
d. P26.40 and P100
36. 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 of 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 improve its
salability, Bengal incurred costs P100 for reconditioning. What should be the loss on
repossessions attributable to this merchandise?
a. P220
b. P320
c. P880
d. P1,100
37. Standard Sales Corporation accounts for sales on the installment basis. The balances of
control accounts for Installment Contracts Receivable at the beginning and end of 2013
were:
Jan. 1,2013 Dec. 31,2013
Installment contract receivable - 2011 P24,020 -
Installment contract receivable 2012 344,460 P67,440
Installment contract receivable 2013 - 410,090
No. 37 continued
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 P200 and
a normal gross profit of 35%.
The total realized gross profit on December 31,2013 and the gain (loss) on repossession are:
a. P172,892.5 and P(381)

b. P172,852.5 and P(452)
c. P142,500 and P(452)
d. P142,500 and P452
38. The 680 Appliance Company reports gross profit on the installment basis. The following data are
available:
2011 2012 2013

Cost of goods installment sales 180,000 181,250 216,000
Gross profit 60,000 68,750 84,000
Collections:
2011 installment contracts P45,000 P75,000 P72,500

2012 installment contracts 47,500 80,000
2013 installment contracts 62,500
Defaults:
Unpaid balance of 2011
Installment contracts P12,500 P15,000
Value assigned to repossessed
Merchandise 6,500 6,000
Unpaid balance of 2012
Installment contracts 16,000
Value assigned to repossessed
Merchandise 9,000
No. 38 - Continued
The total realized gross profit after loss on repossession for 2013 is:
a. P49,775
b. P57,625
c. P48,975
d. P56,625
39. Partial trial balance of Lakan Appliance Corporation as of the end of the fiscal year September
30,2013 follows:
Debit Credit
Deferred gross profit 2012 P50,000
Installment account receivable - 2012 P12,500
Installment account receivable 2013 150,000
Inventory, September 30,2012 62,500
Loss on repossession 3,750
Purchases 435,000
Repossessions 2,500
sales 312,500
The post closing trial balance on September 30,2012 shows the following balances of certain
accounts:
Installment contract receivable - 2012 P100,000

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
40. Carlos Labung Appliance Co., sold a stove, costing P1,000 for P1,600 on September 2012. The
down payment was P160, 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 P640, the customer defaulted. The stove was repossessed in February
2013. It was estimated that the stove had a value of P560 on a depreciated cost basis.
The realized gross profit and the gain (loss) on repossession on December 31,2013 are:
a. P232.76 and P(52.07)
b. P240.00 and P(52.07)
c. P232.76 and P(40.00)
d. P240.00 and P(40.00)
41. The Julia Appliance 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 2012 and 2013
2012 2013
Installment contract receivable, Dec. 31:
2012 sales 80,000 25,000
2013 sales 95,000
Purchases 100,000 120,000
New merchandise inventory, Dec. 31 at cost 10,000 26,000
Loss on repossessions 6,000
The company auditor disclosed that the inventory taken on December 31,2013 did not include
certain merchandise received as a trade-in on December 2,2013 for which an allowance was
given. The realizable value of the 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 2013, a 2012 contract was defaulted and the merchandise was repossessed. At the
time of default, the repossessed merchandise had a fair value of P2,500. The repossessed
merchandise was neither recorded nor included in the physical inventory on December 31,2013.
The total realized gross profit at December 31,2013 and the adjusted gain (loss) on repossession
are:
Realized Gross profit Gain(Loss) on repossesion
a. P70,000 P1,100
b. P70,000 (P1,100)
c. P50,400 P1,100
d. P50,400 (P1,100)
42. Kanlaon Corporation started operations on January 1,2012, selling home appliances and
furniture sets both under cash and under installment basis. Data on the installment sales
operations for the two years ended December 31, 2012 and 2013 are as follows:
2012 2013
Cost of installment sales 240,000 350,000
Cash collections on:
2012 installment contracts 210,000 150,000
2013 installment contracts - 300,000
The balance of the Deferred Gross profit account on December 31,2013 is:
a. P130,000
b. P160,000
c. P190,000
d. P76,000
43. United Trading accounts for sales under the installment method. On January 1,2013 its ledger
accounts included the following balances:
Installment Receivable, 2011 P38,500
Installment Receivable, 2012 155,000
Deferred Gross Profit, 2011 11,550
Installment sales in 2013 were made at a 42% gross profit rate. December 31,2013 account
balances before adjustments were as follows:
Installment Receivable, 2011 P-0-

a. P90,350
b. P97,510
c. P98,910
d. P97,350
44. Presented below is the unadjusted trial balance, as of December 31,2013 of Moslim Products
Corporation:
Cash P5,000
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
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 the 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 have been summarized as follows:
Inventory P7,500
Unrealized gross profit - 2011 800
Unrealized gross profit 2012 2,400
Installment accounts receivable - 2011 2,000
Repossession gain 2,700
The repossessed merchandise were 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 recorditioning 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)
b. P44,000 and P200
c. P56,000 and P300
d. P56,000 and P200
45. The following selected accounts appeared in the trial balance of Union Sales as of December
31,2013
Debit Credit
Installment Accounts Receivable, 2012 sales P15,000
Installment Accounts Receivable, 2013 sales 200,000
Inventory, December 31,2012 70,000
Purchases 555,000
Repossessions 3,000
Regular Sales P385,000
Unrealized Gross Profit, 2012 54,000
Installment Accounts Receivable, 2012 sales,

As of December 31,2012 P120,000
Inventory of new and repossessed
Merchandise, December 31,2013 95,000
Gross profit rate on regular sales during the year 30%
Repossession was made during the year on a 2012 sale and the corresponding uncollected
amount at the time of repossession was P7,750.
The total realized gross profit on December 31,2013 and the (loss) on repossession are:
a. P85,5000 and P(1,262.5)
b. P129,262.5 and P(1,262.5)
c. P43,762.5 and P1,262.5
d. P119,622.5 and P1,262.5
46. 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
47. The Famcor Sales Company employs the perpetual inventory basis in the accounting for new
cars. On August 15,2012, a new car costing P165,000 and with a list price of P220,000 was sold
to Rose Castro. The company granted Ms. Castro an allowance of P85,000 on the trade-in of her
old car, the current value if which was estimated to be P81,700; the balance of P135,000 was
payable as follows: P35,000 cash at the time of purchase and twenty monthly payments of
P5,000 starting September 1, 2012.
On April 1,2013, Ms. Castro defaulted in the payment of the March 1,2013, installment. The new
car sold was repossessed, and its value to the seller was P40,000.
The total realized gross profit and the gain (loss) on repossession on December 31,2013 are:
a. P32,616.62 and P(13,298)
b. P32,616.62 and P13,298
c. P37,388.62 and P15,810.62
d. P27,844.62 and P(15,810.62)
48. The Jade Appliances Company started business on January 1,2013. Separate accounts were
established for installment and cash sales. On installment sales, the price was 106% of the cash
sales price. A standard installment contract was used whereby a down-payment of of the
installment price was required, with the balance payable in 15 equal monthly installment. (the
interest charge per month is 1% of the unpaid cash sale price equivalent at each installment.)
Installment receivable and installment sales were recorded at the contact price. When contracts
were defaulted, the unpaid balances were charged to Bad Debts Expense. The following data are
available:
Sales:
Cash sales P126,000
Repossessed sales 230
Inventory, January 1,2013:

Merchandise inventory 58,060
Purchases, 2013
New merchandise 209,300
Inventories, physical, December 31,2013

New merchandise 33,300
Repossessed inventory 180
Cash collections on installment contract 2013:

Down payments 66,250
Subsequent installments (including interest of P9,252.84 on
all contracts except on defaulted contracts) 79,341
Five contracts totaling P1,060 were defaulted, in each case after 3 monthly installments were paid.
Interest should be recognized in the period earned.
a. P99,024.85
b. P99,084.87
c. P99,184.85
d. P95,024.85
49. The following data were taken from the records of Camille Appliance Company before its
accounts were closed for the year 2013. The company sells exclusively on the installment basis
and its uses the installment method of recognizing profit:
2009 2010 2011
Cost of installment sales 240,000 272,800 256,200
Operating expenses 100,000 94,000 96,000
Balances as of December 31:
Inst. Contracts Receivable -2011 220,000 110,000 28,000
Inst. Contracts Receivable -2012 250,000 92,000
Inst. Contracts Receivable -2013 238,000
During 2013, because some customers can no longer be located, the company wrote off P9,000
of the 2011 installment accounts and P2,800 of the 2012 installment accounts as uncollectible.
Also during 2013, a customer defaulted and the company repossessed merchandise appraised at
P2,400 after costs reconditioning estimated at P400. The merchandise had been purchased in
2011 by a customer who still owed P5,000 at the date of the repossession.
The total comprehensive income on December 31,2013 is:

a. P157,156
b. P61,000
c. P60,156
d. P59,156
50. Jing Trading Company, which started operations on January 2,2012, sells video equipment on
installment terms. Whenever a contract is in default, Jing repossesses the merchandise and
writes this off to a Loss on Defaulted Contracts account. Information regarding the repossessed
goods are not recorded in the books but are kept on a memo basis. Proceeds from the sale of
these goods are credited to the Loss on Defaulted Contracts account. The following information
are taken from the books of Jing:
December 31
2013 2012
Installment contracts receivable, 2012 P2,000 P31,500
Installment contracts receivable, 2013 40,000 -
Sales 125,000 75,000
Loss on defaulted contracts 4,275 250
Allowance for defaulted contracts 2,250 2,250
a. No repossessed video equipment was sold in 2012 or 2013 for more than the unpaid
balance of the original contract. A further analysis of the Loss on Defaulted Contracts
accounts showed the following breakdown:
2012 2013
Contracts Contracts
Contracts written off P3,750 P1,500
Less: sales of repossessed goods 800 175
Loss a defaulted contracts P2,950 P1,325
The repossessed goods on hand on December 31,2013, all of which were repossessed from
2012 contracts, are valued at P200.
b. The P2,000 balance of the Installment Contracts Receivable 2012 account is currently due
and collectible.
c. The gross profit rates on installment sales were 40% in 2012 and 42% in 2013.
d. The rate of bad debts loss for 2013 is estimated to be the same as the 2012 experiences rate
based on sales:
The required balance of the allowance for Defaulted Contracts account and the realized
gross profit on December 31,2013 from 2012 sales are:
a. P3,675 and P10,300
b. P3,675 and P9,300
c. P3,675 and P10,300
d. P4,675 and P9,300
ANSWERS
1. C 11. A 21. D 31. D 41. B

2. C 12. A 22. D 32. C 42. D
3. B 13. A 23. D 33. A 43. A
4. A 14. B 24. A 34. B 44. B
5. C 15. C 25. D 35. C 45. B
6. C 16. A 26. C 36. B 46. B
7. D 17. A 27. A 37. B 47. A
8. D 18. D 28. A 38. A 48. A
9. C 19. A 29. B 39. A 49. C
10. A 20. A 30. B 40. A 50. A
SOLUTIONS AND EXPLANATIONS

1. The answer can be computed by using the basic formula, collections x gross profit
rate.
2012 sales 2013 sales
Collections during 2013 P600,000 P700,000
Gross profit rate 30% 40%
Realized gross profit P180,000 P280,000
Total realized gross profit (P180,000 + P280,000) 460,000
2. Installment account receivable, 12/31/13 P200,000

Gross profit rate 40%
Deferred gross profit, December 31,2013 P80,000
3. Installment sales P500,000

Collections 100,000
Installment accounts receivable, 12/31/13 400,000
Gross profit rate (P250,000/P500,000) 50%
Deferred gross profit, 12/31/13 P200,000
Or
Deferred gross profit(P500,000 P250,000) 250,000
Realized gross profit, 12/31/13 (P100,000x50%) 50,000
4. Realized gross profit (P2,020,000 x 40%) P808,000

Deferred gross profit, 12/31/13:
Installment accounts receivable, 12/31/13
(P16,000,000 - P2,020,000) P13,980,000
Deferred gross profit, 12/31/13 P5,592,000
5. Regular sales P600,00

cost of regular sales 300,000
Gross profit on regular sales P300,000
Realized gross profit on installment sales:
Collections P200,000
Gross profit rate (P500,000/P1,000,000) 50% 100,000
Total realized gross profit 400,000
General and administrative expense 100,000
Total comprehensive income P300,000

Deferred gross profit 320,000
Realized gross profit (P300,000 x 40%*) 120,000
*Gross Profit Rate (P320,000/P800,000) = 40%

Less: Collections P35,000
Accounts written off 5,000 40,000
8. Installment sales (P560,000/40%) P1,400,000

Less: installment accounts receivable, 12/31/13 800,000
Collections P600,000
Realized gross profit P240,000
9.
2012 Sales 2013 Sales Total

Collections (RGP/GPR)
During 2010 (P150,000/P30%) (500,000)
During 2011:
2010 sales (P90,000/30%) (300,000)
2011 sales (P200,000/40%) ________ (500,000)
Installment accounts receivable 12/31/13 P500,000 P1,200,000 P1,700,000
10. Deferred gross profit (gain) P270,000

Realized gross profit:
Down payment P150,000
Installment collections excluding interest:
(P325,000 P75,000) 250,000
Total collections 400,000
Gross profit rate (P270,000/P900,000) 30% 120,000
11. Installment accounts receivable, January 1 P755,000

Total P1,705,000
Less: Installment accounts receivable, Dec. 31 840,000
Collections 865,000
Realized gross profit 389,250
Installment accounts receivable, December 31 P840,000
Deferred gross profit, December 31 P378,000
12. (1) Profit is recognized at the point of sale
Fair value of repossessed property P1,150,000

Less: Unrecovered cost (unpaid balance) 2,000,000
Loss on repossession P(850,000)
(2) Profit is recognized in proportion to collections
Fair value of repossessed property P1,150,000

Less: Unrecovered cost
Unpaid balance P2,000,000
Deferred gross profit (P2,000,000 x 40%) 800,000 1,200,000
13. (1) total realized gross profit
2013 2012 2011
Installment accounts receivable, 1/1/13 P12,890,625 P8,387,500 P1,512,500
Installment accounts receivable, 12/31/13 9,728,125 3,025,000 -0-
Collections during 2013 P3,162,500 P5,362,500 P1,512,500
Gross profit rates 32% 30% 28%
Realized gross profit, 12/31/13 P1,012,000 P1,608,750 P423,500
(Total, P3,044,250)
(2) deferred gross profit, December 31,2013:

2013 2012 2011
Installment accounts receivable, 12/31/13 P9,728,125 P3,025,000 P-0-
Gross profit rates 32% 30% 28%
Deferred gross profit, 12/31/13 P3,113,000 P907,500 P-0-
14. (1) Total realized gross profit

2011 2012 2013
Deferred gross profit before adjustment P10,500 P28,900 P96,000
Deferred gross profit, end:
2011 sales (P12,000 x 35%) 4,200
2012 sales (P40,000 x 34%) 13,600
2011 sales (P130,000 x 32%) ______ _______ 41,600
Realized gross profit, 12/31/13 P6,300 P15,300 P54,400
Total (P76,000)
(2) Total collections in 2013

2011 2012 2013
Installment accounts receivable, beg
2011 sales (P10,500/35%) P30,000
2012 sales (P28,900/34%) 85,000
2011 sales (P96,000/32%) P300,000
Installment accounts receivable, end 12,000 40,000 130,000
Collections during 2013 P18,000 P45,000 P170,000
Total (P233,000)
15.

Collections (150,000)
Accounts written off (50,000)
Gross profit rate (P500,000/P1,000,000) 50%
16. The balance of Deferred Gross Profit Account on December 31,2013 is computed follows:
2012 2013
Sales P300,000 P450,000
Collections (150,000) (150,000)
Accounts written off (100,000) (150,000)
Installment accounts receivable, 12/31/13 P50,000 P150,000
Deferred gross profit, 12/31/13 P15,000 P60,000
Total (P75,000)
17. (1) Realized gross profit, December 31,2013

Regular Sales P385,000
Cost of regular sales (70%) 269,500
Gross profit on regular sales (30%) 115,500
Realized gross profit on installment sales (Sched 1) 128,510
Total realized gross profit P245,010
Schedule 1:
2012 2013
Installment accounts receivable, 12/31/13 15,000 200,000
Total credit 105,000 225,000
Less: credit for repossession (unpaid balance) 7,200 -0-
Collections P97,800 P225,000
Gross profit rates:
2012 sales (P54,000/P120,000) 45%
2013 sales (Schedule 2) _______ 38%
Realized gross profit, 12/31/13 P44,010 P85,500
Total (P129,510)
Schedule 2:
Cost of installment sales:
Inventory, January 1,2013 P70,000
Purchases 555,000
Inventory, December 31,2013 (New) (92,000)
Cost of sales 533,000
Cost of regular sales 269,500 263,500
Gross profit on installment sales P161,500
(2) loss on repossession
Repossession merchandise P3,000

Unrecovered cost:
Unpaid balance P7,200
Deferred gross profit (P7,200 x 45%) 3,240 3,960
Loss on repossession P(960)
18. Total realized gross profit on December 31,2013 is computed below:

2012 2013
Collections during 2013 P240,000 P160,000
Gross profit rates on sales 25%/125% 20%/120%
Realized gross profit P48,000 P26,667
Total (P74,667)
19.
Collections during 2013 P32,000
Gross profit rate:
Installment sales:
Notes receivable (P32,000 + P62,000 + P3,600) P97,600
Unearned interest income (P7,167 + P3,600) (10,767)
Cost of installment sales (P45,200 P2,000) 43,200
Gross profit P43,633
Gross profit rate (P46,633/ P86,833) 50.25%
20. Collections during 2013 (P1,510,000 + P1,900,000 P1,680,000) P1,730,000

Gross profit rate (P679,500/ P1,510,000) 45%
Realized gross profit, 2013 P778,500
21 Zero, because the total cost of P2,000,000 is not yet fully recovered. The total collections
applying to principal as of December 31, 2013 is only P330,000 (P300,000 + P30,000), so no
income is yet to be recognized.
22. First the overallowance on the equipment traded- in should be computed as follows:
Trade- in value P30,000
Actual value:
Estimated sales price 25,000
Less: Reconditioning Cost 1,250
Gross profit(25,000 x 15%) 3,750 5,000 20,000
Over allowance P10,000
The over allowance is treated as a deduction from the selling price of new equipment.
The realized gross profit can now be computed as show below:
Collections
Downpayment:
Cash 5,000
Actual value of Trade- in 20,000 25,000
Installment collection (3 mos. X 5,000) 15,000
Total 40,000
Gross Profit Rate (15,000/ 75,000) 20%
Realized gross profit, 12/31/2013 8,000
23. the unrealized gross profit relating to the unpaid balance of P11,000 (P27,000-P16,000) is
3,740 (11,000x34%). The inventory of repossessed merchandise is to be decreased by this amount.
24. Collection during 2013 100,000

Gross profit rate (250,000/500,000) 50%
REALIZED GORSS PROFIT 50,000
25. Installment accounts receivable-end:

Unrealized gross profit-end 192,000
Divide by GPR on sales (66-2/3% / 116-2/3%) 40% 480,000
ADD: Collections 360,000
Installment Sales P840,000
26. Installment accounts receivable P320,000

Gross Profit Rate on Sales (66- 2/3% / 166-2/3%) 40%
27.
In Thousand Pesos
2012 Sales 2013 Sales
Collection:
During 2012 (630)
During 2013 (450) (900)
Repossession (unpaid balance) (24) -
Installment accounts receivable, 12/31/2013 96 600
Gross Profit rate (GP/IS) 40% 30%
Deferred Gross Profit, 12/31/2013 P38.4 P180
Total balance is P218,400 (P38,400 + 180,000)
28. Fair market value of repossessed merchandise P120,000
Less: Unrecovered cost 200,000
Unpaid balance 65,000 135,000
29. Fair value of repossessed merchandise P6,800
Unrecovered Cost:
Unpaid balance:
Sales 16,000
Collections:
Downpayment 3,200
Installment 3,200 6,400 9,600
Deferred gross profit (9,600 x 40%) 3,840 5,760
Gain on repossession P1,040
30.
2012 Sales 2013 Sales
Deferred gross profit Dec.31,2013 P9,000 P72,000
Divide by GPR (GP/IS) 24% 30%
Installment accounts receivable, Dec.31,2013 P37,500 P240,000
Total balance of receivable on Dec. 31,2013 is
(P37,500 + 240,000) P277,500
31. Gross profit rate based on sales:

Cash (25%/125%) 20%
Charge (33-1/3% / 133-1/3%) 25%
Installment (50% - 150%) 33.33%
Total realized gross profit:
Cash sales (250,000 x 20%) P50,000
Charge sales (400,000 x 25%) 100,000
Installment Sales (240,000 x 33.33%) 80,000
Total P230,000
32. Appraised value of repossessed merchandise P1,500
Less: Unrecovered cost:
Unpaid balance 3,500
Less: Deferred gross profit (3,500 x 35% *) 1,225 2,275
Loss on repossession P775
*Gross profit rate (P2,800 / 8,000) 35%
33.
2012 2013
Sales Sales
Collections:
Downpayment (1/3 of sales) - P110,000
Collection of installment receivables 77,000 70,000
Total 77,000 180,000
Gross Profit rate (schedule 1) 44% 45%
Realized gross profit on Installment Sales 33,880 81,000
Realized gross profit on Cash Sales 2013 (P37,000 x 45%) - 16,650
Realized Gross Profit (P131,530) P33,880 97,650
Schedule 1 2013 2012
Sales Sales
Sales: Cash 37,000 27,000
Installment 330,000 235,000
Total 367,000 262,000
Cost of Sales:
Inventories, 1/1 45,500 -
Purchases 215,000 193,000
Total 260,500 193,000
Inventories 12/31 60,000 45,500
Cost of sales 200,500 147,500
Gross Profit P166,500 P114,500
Gross profit rate (GP/IS) 45% 44%
34. P76,230 represents the total realized gross profit based on 2013 collections of Installment
Accounts Receivable of 2011 and 2012 sales.
2011 2012
Sales Sales
Collections:
Installment accounts receivable, - 25,800
12/31/13
Total credits 17,400 179,600
Less: credit for repossession ______ 200
Collections during 2013 17,400 179,400
Gross profit rate 36% 39%
Realized gross proft, 12/31/13 P6,264 P69,966
Total realized gross profit:

(P6,264 + P69,966) P76,230
A P78 gain is realized from the sale of the repossessed merchandise as computed below:
Sales price P200
Unrecovered cost:
Unpaid balance P200
Less: deferred gross profit (P200 x 39%) 78 122
Gain on repossession P78
35. on the first installment, a profit of P96.80 is realized which is computed as follows:
Cost of sales 924
Gross profit P726
Realized gross profit

Collections P220
Realized gross profit P96.8
On the second installment, a profit of P120 is realized as shown below:
Sales P1,000
Cost of repossessed merchandise:
Appraised value P460
Add: reconditioning cost 60 520
gross profit P480
Gross profit rate (P480/P1,000) 48%
Realized gross profit:
Collections: P250
Realized gross profit P120
36. Appraised value of repossessed merchandise P1,000
Unrecovered cost:
Less: deferred gross profit (P2,200 x 40%) 880 1,320
Loss on repossession (P320)
Gross profit rate (P1,200 + P3,000 ) =40%
37. The realized gross profit is computed as follows:

Year of sales
2011 2012 2013
Installment contract receivable, 1/1/13 P24,020 P344,460 P602,000
Installment contract receivable, 12/31/13 - 67,440 410,090
Total credit 24,020 277,020 191,910
Credit for repossession ______ 2,200 _______
Collections 24,020 274,820 191,910
Gross profit rate:
2011: 133,000/380,000 35%
2012:146,880/432,000 34%
2013:22,740/602,000 ______ _______ 37%
Realized gross profit P8,407 P93,438.8 P71,006.7
Total realized gross profit, 12/31/13:

2011 P8.407
2012 93,438.80
2013 71,006.70
Total P172,852.5
The loss on repossession is computed as follows:
Actual value of repossession merchandise:

Resale price P2,000
Less: Reconditioning cost P300
Gross profit (P2,000 x 35%) 700 1,000 P1,000
Unrecovered cost
Unpaid balance (P5,400-P3,200) P2,200
Less deferred gross profit (P2,200 x 34%) 748 1,452
Loss on repossession P(452)
38. This is computed by deducting the loss on repossession from the total realized gross profit:
Year of Sales
2011 2012 2013 Total
Collections P72,500 P80,000 P62,500
Gross profit rate
2011:P60,000/P240,000 25%
2012:P68,750/P250,000 27.5%
2013:P84,000/P300,000 ______ ______ 28%
Realized gross profit P18,125 P22,000 P17,500 57,625
Loss on repossession
Value of repossessed merchandise P6,000 P9,000
Unrecovered cost:
Unpaid balance 15,000 16,000
Less: deferred gross profit
2011:P15,000x25% 3,750
2012:P16,000x27% _____ 4,400
Unrecovered cost 11,250 11,600
Loss on repossession (P5,250) (P2,600) (7,850)
Total realized gross profit after loss on repossession P49,775
39. The computation is as follows:

Year of sales
2012 2013
Installment contract receivable, 1/1/13 P100,000 P375,000
Installment contract receivable, 12/31/13 (12,500) (150,000)
Total credit 87,500 225,000
Credit for repossession (6,250) -
Collections 81,250 225,000
Gross profit rate (schedule ) 50% 45%
Realized gross profit (P141,875) P40,625 P101,250
Schedule 1 : gross profit rate

2012 sales:
Gross = Deferred gross profit 2012, 9/30/2012 P50,000 = 50%
profit rate Inst. Contract recble 2012, 9/30/2012 100,000
2013 sales:

Less: cost of installment sales-
Cost of goods sold:
Inventories, 9/30/12 P62,500
Purchases 435,000
Cost of goods available 497,500
Less: inventories, 9/30/12
(P75,000-P2,500) 72,500
Cost of goods sold 425,000
Less: cost of regular sales (70% x P312,500) 218,750 206,250
Gross profit on installment sales P168,750
Gross profit rate: (P168,750/P375,000) 45%
40. The realized gross profit is computed as follows:

Collections applying to principal (Sch. 1) P620.69
Gross profit rate (P600/P1,600) 37.5%
Realized gross profit rate P232.76
The loss on repossession is computed below:
Fair value of repossessed merchandise P560

Less: unrecovered cost
Unpaid balance (sch. 1) P979.31
Less: deferred gross profit (P979.31 x 37.5%) 367.24 612.07
Loss on repossession (P52.07)
Schedule 1:
Date (1) Total (2) Applying to (3) Applying to (4) Balance of

payment Interest 005 principal (1) principal (4)
x (4) (2) (3)
Sept. 30 P1,600
Sept. 30 P160 - P160 1,440
Oct. 31 160 7.20 152.8 1287.20
Nov. 30 160 6.44 153.56 1,133.64
Dec. 31 160 5.67 154.33 979.31
640 P19.31 P620.69
41. P70,000 is the sum of the realized gross profit in 2012 and 2013 which are computed as follows:
2012 2013
Installment contract receivable, P80,000 P200,000
beg. (1/1/13)
Installment contract receivable, 25,000 95,000
beg. (1/1/13)
Total credits 55,000 105,000
Less: credit for repossession 6,000 -
Gross profit rate (schedule 1) 40% 48%
Realized gross profit 12/31/13 (P70,000) P19,600 P50,400
The P1,100 adjusted loss is determined as follows:

Value of repossessed merchandise P2,500
Unrecovered cost:
Less: deferred gross profit (P6,000 x 40%) 2,400 3,600
Adjusted loss on repossession (P1,100)
Schedule 1 gross profit rates:
2012 Sales:
Cost sales:
Purchases P100,000
Merchandise inventory, 12/31 10,000 90,000
2013 Sales:
Adjusted installment sales

(P198,500 + P1,500, Trade-in) P200,000
Cost of sales:
Merchandise inventory, 1/1 P10,000
Purchases 120,000
Goods available for sale 130,000
Merchandise inventory, 12/31 26,000 104,000
42. The balance of deferred gross profit on Dec. 31,2013 is computed as follows:
2012 2013
Sales Sales
Collections in 2012 (210,000)
Collections in 2013 (150,000) (300,000)
Installment contract receivable, 12/31/13 40,000 200,000
Gross profit rate (GP/IS) 40% 30%
Deferred gross profit, 12/31/13 (P76,000) P16,000 P60,000
43. Deferred gross profit before adjustment:
2011 sales P11,550

2012 sales 62,000
2013 sales 75,810
Total 149,360
Less: deferred gross profit, end (IAR end X GPR)
2011 sales -
2012 sales (P42,000 x 40%) P16,810
2013 sales(P100,500 x 42%) 42,210 59,010
Total realized gross profit, 12/31/13 P90,350
2012 GPR: P62,000/P155,000 = 40%
44. The total realized gross profit is computed below:

2013 Installment sales:
Unrealized gross profit, 2013 P100,000
Divided by GPR on sales 40% P250,000
Less: Installment receivable 2013,12/31/13 140,000
Collection from 2013 sales 110,000
Realized gross profit on 2013 sales P44,000
The gain (loss) on repossession is computed as follows:
Actual value of repossessed

merchandise:
Sales price P10,000
Less: reconditioning cost P1,000
Gross profit (P10,000 x 40%) 4,000 5,000 P5,000
Unpaid balance:
2011 accounts P2,000
2012 accounts 6,000 8,000
Deferred gross profit:
2011 account(P2,000 x 40%) 800
2012 account(6,000 x 40%) 2,400 3,200 4,800
Gain on repossession P200
45. Total realized gross profit is computed below:

Year of sales
2012 2013
Sales Sales
Installment receivable, 1/1/13 P120,000 P425,000
Installment receivable, 12/31/13 (15,000) (200,000)
Defaulted balance (7,750) -
Realized gross profit, 12/31/13 P43,762.50 P85,500
Total (P129,562.50)
Gross profit rate:

2012 sales (P54,000/P120,000) 45%
2013 sales P425,000
Installment sales
Cost of installment sale:
Inventory, 1/1 70,000
Purchases 555,000
Inventory, 12/31 (95,000)
Repossession 3,000
Total 533,000
Cost of regular sale (70% x P385,000) 269,500 263,500
Gross profit 161,500
GPR(P161,500/P425,000) 38%
The loss on repossession is computed as follows:

Value of repossessed merchandise P3,000
Less: unrecovered cost:
Deferred gross profit (7,750 x 45%) 3,487.50 4,262.50
Loss on repossession P1,262.50
46.
Deferred gross profit, before adjustment P38,000
Less: deferred gross profit applicable to
Uncollected installment accounts:
2012: P16,250 x 30%/130% P3,750
2013:P90,000 x 25% 22,500 26,250
Less: Expenses 1,500
Net income on installment sales P10,250
47. The computation of the realized gross profit is shown below:

List price P220,000
Less: trade-in overallowance P85,000-P81,700 3,300
Adjusted selling price P216,700 100%
Less: cost of sales 165,000 76.14%
Gross profit 51,700 23.86%
Value of old car trade-in P 81,700
Cash received at time of sale 35,000
Installment collected: P5,000 x4 20,000
Total collections in 2013 136,700
Multiply by gross profit rate .2386
Realized gross profit as of December 31,2013 P32,616.62
Gain (loss) on repossession is computed as follows:

Adjusted selling price P216,700
Less: collections
In 2012 (No.47) P136,700
In 2013: P5,000 x 2 10,000 146,700
Defaulted balance P70,000
Multiply by cost rate .7614
Unrecovered cost P53,298
Value of repossessed car P40,000
Less: unrecovered cost 53,298
Repossession gain (loss) P(13,298)
48.
Cash sales P126,000
Installment sales collected
Downpayment (P265,000 x ) P66,250
Subsequent installments P79,341
Less: interest (9,252.84)
Interest on defaulted contracts (sch.1) (20.67) 70,067.49 136,317.49
Total collection P262,317.49
Gross profit rate (sch.2) 37.75%
Realized gross profit, 12/31/13 P99,024.85
Schedule 1 interest on defaulted contracts:
The total interest is determined through the use of the following table:
Installment (1) Equivalent (2) Contact (3) Interest (4) Cash
number cash sales 1- sales income1% collection
(4-3) price2-4 x1
First month P1,000 P1,060 265
Second month 735 795 7.35 53
Third month 689.35 742 6.89 53
Fourth month 689.35 689 6.43 53
Total interest earned 20.67
Schedule 2 gross profit rate:
The 37.75% gross profit rate is determined as follows:

Sales: P126,000
Cash sales 250,000
Installment sales at cash 376,000
sales price (P265,000/106%)
Total sales at cash sales
price
Cost of sales:
Merchandise inventory, January 1 P58,060
Purchases 209,300
Goods available for sale 267,360
Less: merchandise inventory, Dec. 31 33,300 234,060
Gross profit 141,940
Gross profit rate (P141,940/P376,000) 37.75%
49.
Total realized gross profit (Sch.1) P157,156
Loss on repossession (Sch.2) (1,000)
Total realized gross profit loss on repossession 156,156
Operating expenses 96,000
Net income, Dec. 31,2013 P60,156
Schedule 1 realized gross profit
2011 2012 2013

Sales Sales Sales
Inst. Contract receivable, 1/1/13 P110,000 P250,000 P420,000
Inst. Contract receivable, 21/31/13 (28,000) (92,000) (238,000)
Accounts written off (9,000) (2,800) -
Defaulted accounts (5,000) - -
Collections 68,000 155,200 182,000
Gross profit rate (GP/IS) 40% 38% 39%
Realized gross profit (P157,156) P27,200 P58,976 P70,980
Schedule 2 - loss o repossession:
Appraised value of repossessed merchandise P2,400

Less: reconditioning cots 400
Actual value at time of repossession 2,000
Deferred gross profit (P5,000 x 40%) 2,000 3,000
51. The computation of the required balance of the allowance for defaulted contracts account is
shown below:
2013 Bad debts rate
Loss on defaulted contracts P250
Contracts written off 3,750
Sales of repossessed goods (800)
Value of repossessed goods (200)
Total 3,000
Divided by 2012 sales 75,000
Rate of bad debt loss 4%
Estimated loss from 2013 sales (125,000 x 4%) P5,000

Less: loss on defaulted contract 2013 sales 1,325
Required balance of allowance, Dec. 31,2013 P3,675
The realized gross profit on Dec. 31,2013 from 2012 Sales is computed below:
Installment contract receivable 2012, 1/1/13 P31,500
Installment contract receivable 2012, 12/31/13 (2,000)
Installment contract, receivable written off 2012 sales (3,750)
Collections during 2013 25,750
Gross profit rate 2012 40%
Realized gross profit from 2012 sales, 12/31/13 P10,300

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Chapter 4

1. Computation of Gross Profit Rate for each year of sales.

Computation of Gross Profit Rate

Prior year sales:

Deferred Gross Profit (Beg.) Prior Year Sales

Computation of Realized Gross Profit

Installment Account Receivable End x GPR = Deferred Gross Profit End

Computation of Gain or Loss on Repossession

The gain or loss on repossession is computed as follows:

Fair value of repossessed merchandise xx

Trade-in value allowed on the old car Pxx

Gross profit Net Sales (net of overallowance)

The realized gross profit is also computed as follows:

Collections (cash + actual value of old car) x GPR

The realized gross profit for 2013 is:

Installment accounts receivable, 12/31/2013 P200,000

Installment sales P500,000

a. P808,000 and P5,592,000

Installment sales P1,000,000

What is the total comprehensive income on December 31, 2013?

Installment sales P800,000

Installment accounts receivable, December 31, 2013 P800,000

Installment accounts receivable, January 1 P755,000

a. (1) P389,250; and (2) P378,000

a. (1) P(850,000); and (2) P(50,000)

2013 2012 2011

Installment accounts receivable, 12/31:

a. (1) P3,044,250; and (2) P4,020,500

Installment accounts receivable 2011 P12,000

a. (1) P182,000; and (2) P135,400

Installment sales P1,000,000

Installment accounts receivable 2012 P15,000 Repossessions P3,000

Installment accounts receivable 2012, January 1, 2013 P120,00

a. (1) P129,510; and (2) P960

The balance of the unrealized gross profit as of the end of 2013 wa

The repossession resulted to the following (loss) gain:

The transactions of the Blim Company are as follows:

2011 2012 2013

a. P172,892.5 and P(381)

2011 2012 2013

2011 installment contracts P45,000 P75,000 P72,500

Installment contract receivable - 2012 P100,000

The inventory of new and repossessed merchandise on September 30,2013 amounted to

The total realized gross profit on December 31,2013 is:

Installment Receivable, 2011 P-0-

Installment Accounts Receivable, 2012 sales,

How much is the total comprehensive income on installment sales?

Inventory, January 1,2013:

Inventories, physical, December 31,2013

Cash collections on installment contract 2013:

Interest should be recognized in the period earned.

The total realized gross profit on December 31,2013 is:

The total comprehensive income on December 31,2013 is:

1. C 11. A 21. D 31. D 41. B

SOLUTIONS AND EXPLANATIONS

Total realized gross profit (P180,000 + P280,000) 460,000

2. Installment account receivable, 12/31/13 P200,000

3. Installment sales P500,000

4. Realized gross profit (P2,020,000 x 40%) P808,000

5. Regular sales P600,00

6. Installment sales P800,000

7. Installment sales P60,000

8. Installment sales (P560,000/40%) P1,400,000

2012 Sales 2013 Sales Total