PAMANTASAN NG LUNGSOD NG VALENZUELA

INSTALLMENT SALES
Quiz 1

Problem 1. The following selected accounts were taken from the trial balance of Survival Company as of
December 31, 2014:

Account Receivable P750,000

Installment Receivable-2012 150,000
Installment Receivable-2013 450,000
Installment Receivable-2014 2,700,000
Merchandise Inventory 525,000
Purchases 3,900,000
Freight-In 30,000
Repossessed Merchandise 150,000
Repossession Loss 240,000
Cash Sales 900,000
Charge Sales 1,800,000
Installment Sales 4,460,000
Deferred Gross Profit-2012 222,000
Deferred Gross Profit-2013 393,600
Operating Expenses 150,000
Shipment on Installment Sales 2,787,500

Additional Information:

a. Gross profit rate for 2012 and 2013 installment sales were 30% and 32%, respectively.
b. The entry for repossessed goods was:

Repossessed Merchandise 150,000

Repossession Loss 240,000
Installment Receivable-2012 180,000
Installment Receivable-2013 210,000

c. Merchandise on hand at the end of 2014 (new and repossessed) was P282,000.

Required: Compute for the following

1. Total Realized Gross Profit in 2014

2. Balance on Deferred Gross Profit as of December 31, 2014
3. Net Income in 2014

Problem 2 Reuben Company which began operations on January 1, 2014 appropriately uses the
installment method of accounting. The following date pertains to Reuben’s operation for the year 2014:

Installment Sales (before over/under allowance) P3,150,000

Operating expenses 367,500
 Regular sales P1,312,500
Total collection for the year (excluding interest of P84,000) 2,088,000
Cost of regular sales 752,500
Cost of installment sales 2,205,000
Accounts receivable- 12/31/2014 512,500
Installment receivable written-off (no provision was made) 154,000
Estimated resale value of repossessed merchandise 290,000
Profit usual on the sale of repossessed merchandise 15%
Repossessed accounts 350,000
Actual value of trade-in Merchandise 280,000
Trade-in allowance 490,000
Reconditioning cost of the repossessed merchandise 57,500

1. How much is the deferred gross profit at December 31, 2014?

2. What is the net income for the year ended December31, 2014?

Problem 3 The following account balances appear on the books of Ces Company as of December 31,
2014:

Cash P150,000
Receivables 800,000
Merchandise Inventory 75,000
Accounts Payable 30,000
Deferred Gross Profit-2012 261,250
Sales 1,250,000
Purchases 640,000
Expenses 425,000

a. The Receivables account is a controlling account for three subsidiary ledgers which show the
following totals:

2013 installment contracts P150,000

2014 installment contracts 600,000
Charge accounts (term, 30 days, 50,000
net)

b. The gross profit on sales on installment contract for 2013 was 55%, on installment contracts for
2014 50%.
c. Collections on installment contracts for 2013 total P300,000 for the year just closed; on
installment contract for 2014, P400,000; on charge accounts, P200,000.
d. Account balances from installment sales made prior to 2013 were also collected.
e. Repossession for the year was on installment contracts for 2013 on which the uncollected
balance at the time of repossession amounted to P50,000.
f. Merchandise repossessed was erroneously debited as a newly acquired merchandise equal to
the amount defaulted by the customer.
 g. Appraisal reports show that this repossessed merchandise has a true worth of P20,000 at the
time of repossession and remain unsold at year end.
h. The final inventory of the merchandise (new) valued at cost amounted to P45,000.

Required: Compute for the following

1. Total realized gross profit in 2014

2. Net Income in 2014

Problem 4 Tonton Corporation sells good on the installment basis. For the year just ended, the following
were reported: Cost of installment sales, P8400,000; Loss on repossession, P202,500; Wholesale value of
repossessed merchandise, P1,687,500; Repossessed account, P2,700,000; Deferred gross profit after
adjustment, P1,620,000.

1. How much was the collection for the year?

Problem 5. Poral Company began operations on January 2, 2014, and appropriately used the installment
sales method of accounting. The following data are available for 2014 and 2015:

2014 2015
Installment sales P3,000,000 P3,600,000
Gross profit on sales 30% 40%
Cash collections from
2014 1,000,000 1,200,000
2015 1,400,000

1. The realized gross profit for 2015 is:

Problem 6 Bea Medical Center uses the cost recovery method in accounting for recognizing revenue. The
following information is available:

2005 2006 2007

Sales P45,000 P60,000 P85,000
Gross profit percentage 37% 41% 40%
Cash collections:
2005 24,000 19,000 2,000
2006 40,000 17,000
2007 53,000

1. Determine the amount of gross profit to be recognized in 2005.

2. Determine the amount of gross profit to be recognized in 2006.
3. Determine the amount of gross profit to be recognized in 2007.

Problem 7 Gilas Enterprises uses the cost recovery method of construction accounting for all installment
sales. Complete the following table:

2014 2015 2016

Installment sales P50,000 P95,000 6
Cost of installment sales 1 56,050 68,250
Gross profit percentage 38% 2 35%
Cash collections:
2014 sales 25,600 46,400 5,600
2015 sales 22,800 5
2016 sales 32,550
Realized Gross Profit on Installment Sales 3 4

1. ________________________
2. ________________________
3. ________________________
4. ________________________
5. ________________________
6. ________________________

Problem 8 L.A. Lakers Appliances accounts for all sales of its merchandise on its installment sales basis.
Following is unadjusted trial balance at December 31, 2006:

Cash P45,000
Installment accounts receivable-2004 20,000
Installment accounts receivable-2005 50,000
Installment accounts receivable-2006 90,000
Inventory 27,400
Repossessed merchandise 4,600
Accounts payable P36,600
Deferred gross profit-2004 12,000
Deferred gross profit-2005 26,400
Common stock 125,000
Retained earnings 10,000
Installment sales 120,000
Cost of installment sales 78,000
Loss on repossession 3,000
Operating Expenses 13,000
Total P331,000 P331,000
Additional information:

a. 2004 gross profit rate: 25%

b. Total cash receipts during 2006: P118,000
c. Merchandise sold in 2005 was repossessed in 2006 and the following entry was
prepared:

Repossessed Merchandise 4,600

Repossession Loss 3,000
Deferred gross profit 2,400
Installment Receivable-2005 10,000
Questions:
1. What is the gross profit rate for 2005?
2. What is the gross profit rate for 2006?
3. Of the total cash receipts in 2006, how much represents collections from installment sales of
2004?
4. Of the total cash receipts in 2006, how much represents collections from installment sales of
2005?
5. Of the total cash receipts in 2006, how much represents collections from installment sales of
2006?
6. What is the total realized gross profit in 2006?

Problem 10 Miami Heat Corporation incurred the following activity during its first two years of
operations:
2004 2005
Total credit sales P750,000 P900,000
Installment sales* 300,000 450,000
Total cost of sales 500,000 540,000
Installment cost of sales** 165,000 270,000
Cash receipts on installment sales:
2004 sales 75,000 105,000
2005 sales -0- 120,000

*Included in total credit sales.

**Included in total cost of sales.
Determine the following:
1. Realized gross profit in installment sales 2004.
2. Realized gross profit in installment sales 2005.
3. Total gross profit 2004.
4. Total gross profit 2005.
5. Installment accounts receivable (net of deferred gross profit) 2004.
6. Installment accounts receivable (net of deferred gross profit) 2005.