Chapter 4Installment 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 year’s 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 Roco’s 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 250,000 000 4.000. 2013? a.. Filstate gross profit percentage is 40%.000 d.000. Filstate appropriately uses the installment method of revenue recognition. Long Co.000 c.020. appropriately uses the installment method of accounting.000 b.592. P808.000 General and administrative expenses 100.400.000 The realized gross profit and deferred gross profit at December 31. 75.000 and P5. The following information pertains to Long’s operations for the year 2013: Installment sales P1. 5.000 d.000 and 808. 808. 300.0000 What is the total comprehensive income on December 31. 2013 are: a. which began operations on January 1. Filstate Co.000 c. Relevant information for Filstate first year of operations is as follows: Sales P16. 200.000 General and administrative expenses 50.000 Regular sales 600.000 Cost of installment sales 500.000 Cost of regular sales 300. 2013. 5.000 b.000 5.040. 200. 100.000 b. 2013.000 Collections on installment sales 200. 2013 statement of financial position.000 d. Cost of regular sales 150.000 In its December 31. is a real estate developer that began operations on January 2. P250.000 . 160.000 and 6. with the balance payable over 30 years. what amount should Gray report as deferred gross profit? a.000 c. Filstate sales are made on the basis of a 10% downpayment.600. P400.000 Cash collections 2.000 Collections on installment sales 100.000 and 808. 000 c. 2013. 9.000 The balance in the deferred gross profit account at December 31. Kiko Co. 320. 150.000 c..000 were written off during 2013.000 8. 6. appropriately uses the installment sales method of accounting. December 31. which began operations on January 1. respectively. 200. Tayag’s sales and collections for the year were P60.000 Gross profit on sales 40% For the year ended December 31. On December 31. 2013. 340. Tayag Corp. what amount should Tayag report as deferred revenue? a. accounts for revenues using the installment method. Uncollectible accounts receivable of P5. 240.000 b.500 d.000 d..000 c. which began operations in 2013. The following information is available for the years ended December 31.000 b.000 Cost of installment sales 480. which began operations on January 2. Laya Corp. P320. P120. 2013 (before recognition of realized gross profit for 2013) 560. The following information pertains to Kiko’s operations for 2013: Installment sales P800. appropriately uses the installment method of accounting to record revenues.000 9. December 31.000.000 Collections on installment sales 300.000 7. realized gross profit on sales should be: a. 2012. began operations on January 1.6. Tayag’s gross profit rate is 30%. 320. 2013 P800. P10.000 Deferred gross profit. 2013. The following information is available for 2013: Installment accounts receivable.000 and P35.500 b. 2012 and 2013: .000 d. 2013 and appropriately uses the installment method of accounting.000 General and administrative expenses 80.. Dulce Co. 2013 should be: a. 7. 000 note bearing interest at 10%.000 10.000 P1. P1.000.750 Installment sales 950. December 31 840. January 1 339. On that date. What amount of deferred gross profit should Black report at December 31. resulting in a gain of P270. and (2) 339. 1. a. which included accrued interest of P75. 2013? a.000 d.750 .000 b.500. 2013.000 90. 2013.250 c.000. The following data was taken from the accounting records of the company as at December 31. (1) P389. and (2) 389. January 1 P755.000.000 b. 180.000 d. sells residential lots on installment basis.250. Black appropriately accounted for the sale under the installment method. and (2) 427.000 Deferred gross profit. and (2) P378. 2013. for P900. On January 2. White Plains.000 d. White paid P150. 1. 2013 and (2) the balance of the Deferred Gross Profit account on December 31.500 c.000 11. 2013: Installment accounts receivable.000. of P325. 172. Black Co.775.000 cash and signed a P750.750. 1. 2013. 200. 2012. Inc.300.000 b. 2012 2013 Installment sales P1. Inc.225.000 Gross profit realized on sales made in: 2012 150.700. sold a used machine to White.000 Installment accounts receivable. (1) 378. (1) 427. (1) 330. statement of financial position? a. 225.000 beginning January 2.000.000. White made a timely payment of the first installment on January 2.000 Complete (1) the realized gross profit on December 31. The note was payable in three annual installments of P250. P150.000 2013 .800.000 c.000 Gross profit percentages 30% 40% What amount of installment accounts receivable should Dulce report in its December 31. (1) 850. (1) (50.025. and (2) 4.512. 2013 how much is the (1) total realized gross profit and (2) deferred gross profit? a.044.000 13.700.000).000) d.500 On December 31.000).500 .000 Gross profit rates on sales 32% 30% 38% Installment accounts receivable. and (2) P(50.250. (1) 6. and (2) 50.000 Installment accounts receivable – 2013 130. 12/31: From 2013 sales 9. and the property was repossessed. Sarao Motors sells locally manufactured jeeps on installment basis. and (2) (450.000 Installment accounts receivable – 2012 40.000 for P2.950. 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. (1) 3.000.125.000 P4.728. In August. The buyer defaulted on the note at the beginning of 2013.500 b.500 4.000 cash and a mortgage note for the balance payable in monthly installments. sold condominium units costing P1.000.020.250. Mega World Inc.440.500 d. and (2) 4.000 8. Installment received in 2010 reduced the principal of the note to a balance of P2.000 Deferred gross profit – 2011 10.044.000 at the time of repossession. the accounting records show unadjusted balances of the following: Installment accounts receivable – 2011 P12.000. a. (1) P3.000).020.000) c. (1) 3. Data presented below related to the company’s operations for the last three calendar years: 2013 2012 2011 cost of installment sales P8.387.125 From 2012 sales 3.000 c. and (2) 4.765.020.750.625 P7.250. The property had a fair market value of P1.000) b.500 From 2011 sales 1. and (2) (450. 2012. Polo Company appropriately uses the installment sales method of recognizing revenue. On December 31.812. (1) (850. 2013.150.400. and (2) P4.993.12. (1) P(850.500 14.733.000 receiving P350. 320.000 Cost of installment sales 500.000. and (2) 233. 400. Nike Company.000 b. and (2) 368. P500.900 Deferred gross profit – 2013 96. appropriately uses the installment method of revenue recognition.000 Gross profit rates 30% 40% .000. (1) 158. and (2) 97. uses the installment method of revenue recognition.000 Collections on installment sales 150. 2012. 150.000 c.000 c. 150. 150. 2013? a. and (2) P135. compute (1) total realized gross profit and (2) the total cash collections in 2013: a.000 Collections from: 2012 sales 100.000 75.000 2013 sales -0.000 50.600 15.000 Accounts written off from 2012 sales 25. 2013. The following data pertains to the company’s operations for the 2013: Installment sales P1.400 d. The following information pertains to the company’s operations for 2012 and 2013: 2012 2013 Sales P300.000. which began operations on January 2.000. which began operations on January 5.000 Installment accounts receivable written off 50.000 What is the balance of Deferred Gross Profit account – 2013 on December 31. Deferred gross profit – 2012 28.400 b.000.000 2013 sales -0. (1) 106.000 d.000 16. 2013 appropriately.000 P450. Bally Company.000 Gross profit rates: 2011 35% 2012 34% 2013 32% For the year ended December 31. (1) 76. (1) P182. 464 18.000 Repossessions P3.000 Gross profit rates based on cost 25% 20% Cash collection on 2012 sales 130. 125. 2013 95. and (2) P960 b.510. and (2) 1. (1) 129.000 d.000 .000 Cash collection on 2013 sales 160. 112.000 Regular sales 385. January 1.000 b.000. P124. P100. What amount should Nike Company report as deferred gross profit in its December 31. and uses the installment method of revenue recognition.000 What is the amount of realized gross profit to be recognized on December 31.510.000 17. (1) 245.500. 2013 P120.2012 54.000 Additional information: Installment accounts receivable – 2012.200.000 c. 2012 70.000 Deferred gross profit . which sells appliances started operations on January 10. and (2) 1. 80.000 Purchases 555. (1) 85.000 240. 2013 statement of financial position? a.2013 operates on a calendar year basis.000 Installment accounts receivable – 2013 200.00 Inventory of new and repossessed merchandise. P75.000 Inventory.2013? a. It was a 2012 sale and the corresponding uncollected balance at the time of repossession was P7.000 Gross profit rate on regular sales 30% Repossession was made during the year.500 b.464 c. and (2) 960 d. The following data were taken from the 2010 and 2011 accounting records: 2012 2013 Installment sales P480. Compute (1) the total realized gross profit for 2013 and the (2) loss on repossession: a.000 Installment sales 425. The following accounts appeared in the accounting records of Adidas Sales Company as of December 31. 2013: Installment accounts receivable – 2012 P15.000 P620. December 31. December 31. 2013. (1) P129. Mango Company. P92. P756.900.000 December 31.200 inventory of goods on hand P2. .080 b.667 19. P679. The following information pertains to a sale of real estate by RR Co.500 c.2013 installment was paid as scheduled.2013 plus interest of 10%.500 d.2012: Carrying amount P2.000 How much is the gross profit realized during the year 2013? a. P25. Lucia Realty Corporation sells residential subdivision lots on installment basis. The income statement for 2013 presented the following data: Revenues – collection on principal P32. P74. Sta. P43.600 Cost of goods purchases (includes 45.000 Installment sales .000 d.000 beginning December 31.000 Sales price: Cash P300. c. The following data were taken from the company’s accounting records as of December 31.000 Purchase money mortgage 2.510.500 21.2013 1. P16.000 Unrealized gross profit – January 1.000. to SS Co. P630. what is the realized gross profit on December 31.000. P778.2013 P1.2013? a.2013. on December 31. Lacoste Corporation has been using the cash method of revenue recognition.586 c.680.500 b. P18.000 Revenues – interes 3. All sales are made on account with notes receivable given by the customers. The December 31.633 20. The company uses a uniform gross profit rate: Installment accounts receivable: January 1.500 Installment sales – 2012 1.000) The balances due on the notes on December 31 were as follows: Notes receivable P62.700.180.000 3.167 Assuming the use of the installment method of revenue recognition.060 d.2013 679.000 Unearned interest income 7.2013 1.000 The mortgage is payable in nine annual installments of P300. 000 1.000 was collected prior to default. recognizes at year end gross profit on collections which is consisted of cost and gross profit.000 23. the company debits installment receivable.000. which sells goods on installment basis.900.000 P3. It reported the following: January 1 December 31 Installment receivables 2011 P120.000 c. P270. Cash of P5. Terms of payment included the acceptance of a used equipment with a trade-in value of P30.010.000.050.450 Sales and cost of sales for the three years are as follows: 2011 2012 2013 Sales P1. A decrease of P6. The unit cost to the company was P60.425. For default and repossessions.000 but the installment selling price was set at P85. sold a fitness equipment on installment basis on October 1.000 1.250 to recondition the used equipment so that it could be resold for P25.2013.000 c. P34. It would require P1. together with interest of P270.000 d. What amount of income should RR recognize in 2013 from the real estate sale and its financing? a. P8. The realized gross profit from the 2013 collections amounted to a.896.610. Zero b.300 P337.000.000 P2.000 d. P4.000 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.000 b.235.100 0 2012 1. As collections are made. The sales were made in 2012 for P27. The amount of adjustment on the inventory of repossessed merchandise to the extent of the unrealized gross profit was a.0000 Cost of sales 1. A decrease of P2.500 from customers who defaulted in payments. RR uses the cost recovery method to account for the sale. Action Inc. A 15% gross profit was usual from sale of used equipment.000 on which P16.200 2013 0 2. P570.500 .240 c.000. P10. P0 22.300 In 2013 the company repossessed merchandise with resale value of P8.000 b. M & J Corp. the company debits cash and credits installment receivable.722. P370. 000 Cash collection including down payments 360.000 c. Dec.000 on the date of the sale and a mortgage note for P400.000 d. 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. P80.000 plus interest on the unpaid principal at 16% per annum.000 General and administrative expenses 40.000 What was the total amount of sale on installment basis? a. 31.2013 80. A decrease of P3. started operations on 1 January 2012 selling home appliances and furniture on installment basis. P648. P96.000 b.000 c.000 25.000 payable in twenty (20) semiannual installments of P20. For 2012 and 2013 the following represented operational details.740 24.000 The balance of the deferred gross profit account at December 31.000 which is carried in its books for P250.000 b. began operating at the start of the calendar year 2013 uses the installment method of accounting: Installment sales P400. P250.2013 should be: a. Haybol Realty Co. P480. The Brownout. Dec.000 26. P840. On October 2013. P192.000. P552.000 d. P50.000 c. The company received P100.2013 320. The realized profit to be recognized by Haybol Realty Corp.000 Accounts receivable. P128. P60. Tear Drops Corp. 31.000 Gross margin based on cost 66 2/3% Inventory.000 27.000 d.000 b. sold to Mae Balay a property for P500. P100. In thousand Pesos 2012 2013 . d. in 2013 if gross profit is recognized periodically in proportion to collections would be a. Inc. 960 30. The repossession resulted to the following (loss) gain: a. (P80. at which time the fair value was determined to be P6.000 The gain(loss) on repossession is: a.200 P1.025. P(1.000. She made a down payment of 20%.000 P375. P4.040 c. (P15. The refrigerator was repossessed.400 b. payment of four of the remaining 16 equal payment and defaulted on further payments.000. P5.000 28.000. which included a 40% markup on selling price. The related installment receivable balance as of date of default and repossession was P24.000 252.000) b.000 d.000 was repossessed. Pertinent data are as follows: 2011 2012 2013 Installment sales P300. P218. P275.000 c. The balance of the unrealized gross profit as of the end of 2013 wa a.000 Repossessed accounts 200.000 29.800.050 Collections on installment sales 2012 630 450 2013 0 900 On 7 January 2013. Four J Co. For the year just ended the following were reported: Installment sales P3.056 d.500 Cost of installment sales 720 1.000 Fair market value of repossessions 120. P2. Installment sales P1. The Company uses the installment method of accounting to recognize income.800.000 P360. an installment sale account in 2010 defaulted and the merchandise with a market value of P15. P15. A refrigerator was sold to Fernandina Castro for P16. sold goods on installment.000 Cost of sales 225.000 Cost of installment sales 2.040) b.000 c.000 Collections on installment sales 1. P192. P360.000 285.000) d. P1.000 . when the installment account receivable had a balance of P3. with the balance payable in 18 equal monthly installments.000 at a gross profit of P2.000 b.775 33.000 32. Guijo Company’s sales were as follows: Sales basis Mark-up on cost Sales Cash 25% P250. P775 d. At the end of 2013.000 b.500.500 b.2013 is: a. In its first year of operations. Balances of Deferred Gross Profit at Year end 2011 P52.2012 Blim Company commenced its sales of gas stoves. P230. The transactions of the Blim Company are as follows: 2012 2013 Sales: New gas stoves for cash P27. On January 1. 72. P279. P277. P2.000 2012 .000 c. how much was the total gross profit realized at the end of the year? a.500 P15.000 Charge 33-1/3% 400.000 c. it was ascertained that the customer would be unable to make further payments.000 P37. The loss on repossession was: a.000 The cost of goods sold for the year was P900. but perpetual inventory record was not kept. P50.800. The merchandise was then repossessed and was appraised at a value of P1.000 31. 54. P80. P3.500 c. .000 . P270. P60.000 installment 50% 600.000 d.000 P- 2012 .000 The total balance of the Installment Accounts Receivable on December 31.000 9. Separate accounts were set up for installment and cash sales.500. No.500 d.000. P300. On the installment sales of a down payment of 1/3 was required. 31 – Continued If collections on installment sales during the year amounted to P240. P1. A sale on installment basis was made in 2013 for P8.000. P140. it related to a 2012 sale.800 P610.230 and P78 c.500 60.230 and P78 .800 2013 . which sells appliances exclusively on the installment basis. 2013 and the gain (loss) from the sale of the repossesses appliance are: a. The repossessed appliance was sold at its fair value of P200.000 Cash collections on installment contracts. P131.000 No.400 P- 2012 205.000 2013 sales . The total realized gross profit on prior year sales on December 31. exclusive of down payments: 2012 sales 54.000 77. 33 – Continued The realized gross profit for the year 2013 that would be reported on the income statement amounted to: a. 70.000 Physical inventories at December 31: New gas stoves at cost 45. which equaled the uncollected balance in the customer’s installment accounts receivable. P76. P76.000 215.966 and P78 d.500 P417. The data below are taken from the records of Jess Appliance Co. 305.750 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 P17.500 34.530 b. P75.400 25.000 c. P131.520 There was one repossession recorded during 2013..000 330. P123. New gas stoves on installment (including the 1/3 cash 235. 2011 2012 2013 Installment sales P365.000 down payment) Purchases 193.350 d. P69.230 and P(78) b. 440 Installment contract receivable – 2013 .2013 Dec. Standard Sales Corporation accounts for sales on the installment basis. Bengal therefore repossessed the merchandise. The balances of control accounts for Installment Contracts Receivable at the beginning and end of 2013 were: Jan. P220 b. 37 – continued During 2013. the merchandise was appraised as being worth only P1.80 and P120 d. this installment account receivable had a balance of P2. P26. When reacquired. The realized gross profit from the first installment sale (to Jose Santos) and from the second installment sale (to Pedro Reyes) are: a.2011 P24. The company sales and cost of sales figures are summarized below: 2011 2012 2013 Net sales P380. P320 c. On June 1 2013.200 and it was determined that no further collections would be made.000 at a down payment of the first installment of P250. Matias Manuel is a dealer in appliance who sells on an installment basis.000 285.460 P67.650 to Jose Santos who made a down payment of P220.80 and P100 b.000 P602. he expended P60 for reconditioning. P96.000 Cost of sales 247.000 P432.40 and P120 c. He was able to sell the refrigerator to Pedro Reyes for P1.40 and P100 36. Mr.400 and P3.2013 Installment contract receivable . 410. No.090 No.200 had been collected prior to default. but defaulted in subsequent payments. P26. 35. During 2013 Bengal sold furniture to an individual of P3.000 at a gross profit of P1. What should be the loss on repossessions attributable to this merchandise? a. P880 d.260 .100 37. The Bengal Furniture Company appropriately used the installment sales method in accounting for the following installment sale. In order to improve its salability. 1. P1. Bengal incurred costs P100 for reconditioning. 31.200. A refrigerator which originally cost P924 was sold by him for P1.000.120 379. 35 – Continued Mr. P96. Manuel repossessed the refrigerator at an appraised value of P460. the company repossessed a refrigerator which had been sold in 2012 for P5.020 - Installment contract receivable – 2012 344. To improve its salability. P48.975 d. The total realized gross profit on December 31.000 Collections: 2011 installment contracts P45.000 Gross profit 60.500 6.000 P250. Partial trial balance of Lakan Appliance Corporation as of the end of the fiscal year September 30.250 216.2013 follows: Debit Credit Deferred gross profit – 2012 P50.000 68.750 84.500 P15.000 . P172. The following data are available: 2011 2012 2013 Installment sales P240.625 c.2013 and the gain (loss) on repossession are: a. 38 .000 Cost of goods – installment sales 180.500 80.775 b.5 and P(452) c. P56.Continued The total realized gross profit after loss on repossession for 2013 is: a.500 Defaults: Unpaid balance of 2011 Installment contracts P12.000 No. The resale price of the repossessed merchandise is P2.500 and P452 38.000 after reconditioning cost of P200 and a normal gross profit of 35%.500 2012 installment contracts 47.5 and P(381) b.500 and P(452) d.000 P300.000 Value assigned to repossessed Merchandise 9.852. P49.000 Unpaid balance of 2012 Installment contracts 16.625 39. P172. The 680 Appliance Company reports gross profit on the installment basis. P142. P57.000 2013 installment contracts 62.000 Value assigned to repossessed Merchandise 6.892. P142.000 P72.000 P75.000 181. It was estimated that the stove had a value of P560 on a depreciated cost basis.600 on September 2012.250.2012 62. Installment account receivable .000 Deferred gross profit – 2012 50.000. The stove was repossessed in February 2013.000 The gross profit rate on regular sales during the year was 30% The inventory of new and repossessed merchandise on September 30.500 sales 312. P240.000 Repossessions 2.2012 P100. P240.750 Purchases 435.00) 41.875 40.2012 P12. P140. Interest was charged on the unpaid balance of the contract at ½ of 1% a month.500 Loss on repossession 3.875 b.07) b.76 and P(52.000 Installment sales 375. the customer defaulted. Carlos Labung Appliance Co. P40. 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 . The realized gross profit and the gain (loss) on repossession on December 31. Unpaid balance on repossessed merchandise sale of 2012 is P6. P232. costing P1.625 d. The Julia Appliance company makes all sales on installment contracts and accordingly reports income on the installment basis.500 The post closing trial balance on September 30. After paying a total of P640. and the same amount was to be paid at the end of each succeeding month..250 c.00) d. payments being considered as applying first to accrued interest and the balance to principal.500 Installment account receivable – 2013 150. The down payment was P160.00 and P(40. sold a stove.2012 shows the following balances of certain accounts: Installment contract receivable . September 30. P101.76 and P(40. P232.07) c.2013 is: a.000 for P1.2013 amounted to P75. P141.2013 are: a. Installment contracts receivables are accounted for by years.00 and P(52. The total realized gross profit on December 31.000 Inventory. 31 at cost 10. P70. selling home appliances and furniture sets both under cash and under installment basis. 31: 2012 sales 80.500 Installment contract receivable.000 P500.500 which was also the allowance on the trade-in. default.000 The company auditor disclosed that the inventory taken on December 31. No entry was made to record this merchandise on the books at the time it was received.000 b.100 d.000 d.000 P1.100 b. a 2012 contract was defaulted and the merchandise was repossessed.400 P1.100) 42.000 120. the repossessed merchandise had a fair value of P2.500.000 Purchases 100.000 2013 installment contracts .000 New merchandise inventory. P50. The realizable value of the merchandise is P1. P160. P130.000 43. 2012 and 2013 are as follows: 2012 2013 Installment sales P400. The repossessed merchandise was neither recorded nor included in the physical inventory on December 31.2013 and the adjusted gain (loss) on repossession are: Realized Gross profit Gain(Loss) on repossesion a.000 c.000 150.2013 did not include certain merchandise received as a trade-in on December 2. Kanlaon Corporation started operations on January 1. The following data relate to the transactions during 2012 and 2013 2012 2013 Installment sales P150.000 Cost of installment sales 240.400 (P1. Dec.2012.000 25. United Trading accounts for sales under the installment method.000 2013 sales 95.500 . 300. P50.000 350. P190.000 Cash collections on: 2012 installment contracts 210. Dec.100) c. Data on the installment sales operations for the two years ended December 31.2013 is: a.000 Loss on repossessions 6.2013 for which an allowance was given.000 The balance of the Deferred Gross profit account on December 31. The total realized gross profit at December 31. On January 1.2013 its ledger accounts included the following balances: Installment Receivable. P76. At the time of default.000 (P1.000 P198. 2011 P38.000 26. In 2013. P70.2013. All repossessions and trade-ins are recorded at realizable values. 2013 of Moslim Products Corporation: Cash P5.500 Unrealized gross profit .2013 200.000 P932.000 Trade Accounts Payable P50.2012 40.000 Other Assets 497.2013 140.500 Deferred Gross Profit.000 Unrealized Gross Profit . 2011 P-0- Installment Receivable. Presented below is the unadjusted trial balance.000 Capital stock 600. December 31.550 Deferred Gross Profit.000 Repossession Gain 6. and the company adopts perpetual inventory procedures. 2012 62.000 Inventory.000 Deferred Gross Profit.550 Deferred Gross Profit.000 Installment sales in 2013 were made at a 42% gross profit rate.2011 2.000 Operating expenses 50.000 Retained Earnings 80.000 Installment Accounts Receivable . On the installment sales. as of December 31. P97.350 44. 2011 11.2011 10. Installment Receivable. December 31.000 Installment Receivable.2013 is: a.810 The total realized gross profit on December 31.000 ________ P932.2011 800 Unrealized gross profit – 2012 2. P98. 2011 11. P97. 2012 62. P90.000 Unrealized Gross Profit – 2012 86.510 c.400 Installment accounts receivable .350 b.000 Deferred Gross Profit.000 The cost of goods sold had been uniform over the years at 60% of sales. Repossessions of merchandise have been made during 2013 due to some customers’ failure to pay maturing installments.000 Installment Accounts Receivable . 2013 100.000 Unrealized Gross Profit – 2013 100.2013 account balances before adjustments were as follows: Installment Receivable. 2013 75.000 . 2012 42.910 d. the company charges installment accounts receivable and credits inventory and unrealized gross profit accounts. The analysis of these transactions have been summarized as follows: Inventory P7. 2012 155. 262.000 and a normal gross profit.5 d. at their original cost.750.262.000 Regular Sales P385. A fair valuation would be a sales price of P10.000 and P200 c.2013 95. The total realized gross profit on December 31.262. 2013 sales 200.262.000 Purchases 555. P56. The realized gross profit from 2013 sales and the gain (loss) on repossession on December 31.2012 70. P85.000 Repossessions 3.700 The repossessed merchandise were unsold at December 31. 2012 sales P15.5 and P1.5000 and P(1. P119.000 Installment Accounts Receivable. The following selected accounts appeared in the trial balance of Union Sales as of December 31.5 and P(1. December 31.2013 Debit Credit Installment Accounts Receivable. December 31. As of December 31.622.000 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 P7.000 and P300 d. P56.2012 P120.000 and (P200) b.5 and P1.000 Installment sales 425.000 Additional information: Installment Accounts Receivable.000 Inventory.000 Unrealized Gross Profit.000 and P200 45. upon repossession. P43.2013 and it was ascertained that these were booked.262. P44. 2012 54. 2012 sales.000 Inventory of new and repossessed Merchandise.000 Repossession gain 2.2013 are: a.5 .000 after recorditioning cost of P1.762.5) b. P129.5) c. P44.2013 and the (loss) on repossession are: a. Installment accounts receivable – 2012 6. 250 2013 installment accounts receivable 90. Expenses paid relating to installment sales were P1.810. the unpaid balances were charged to Bad Debts Expense. The books of Paiyakan Company show the following account balances on December 31.000 starting September 1. the current value if which was estimated to be P81.62 and P15. P10. On installment sales. the price was 106% of the cash sales price. and in 2013 at 33-1/3% above cost.2012. with the balance payable in 15 equal monthly installment. P32.500 2012 installment accounts receivable 16. The new car sold was repossessed. 2012.000 b. Ms. and its value to the seller was P40.298) b.2013. On August 15. The total realized gross profit and the gain (loss) on repossession on December 31. The following data are available: . The company granted Ms.000 d.388.250 c.62 and P(13. Separate accounts were established for installment and cash sales. Castro defaulted in the payment of the March 1.750 Deferred gross profit (before adjustment) 38.62) 48.810.000 Analysis of the accounts receivable reveals the following: Regular accounts P207.) Installment receivable and installment sales were recorded at the contact price.2013 are: a. On April 1. P27.2013.000 was payable as follows: P35.700.844. installment. When contracts were defaulted.616. P37.000 and with a list price of P220.46.2013. How much is the total comprehensive income on installment sales? a.298 c.616. The Jade Appliances Company started business on January 1. P32. Castro an allowance of P85. P10.000. the balance of P135.62 d.62 and P13.500.000 cash at the time of purchase and twenty monthly payments of P5. P11. (the interest charge per month is 1% of the unpaid cash sale price equivalent at each installment. A standard installment contract was used whereby a down-payment of ¼ of the installment price was required. P11.2013: Accounts receivable P313. The Famcor Sales Company employs the perpetual inventory basis in the accounting for new cars. a new car costing P165.500 47.000 was sold to Rose Castro.000 Sales on installment basis in 2012 were made at 30% above cost.000 on the trade-in of her old car.62 and P(15. 000 28.300 Inventories.000 110.000 Repossessed sales 230 Inventory.000 92.000 P440. P99.2013 New merchandise 33. December 31.000 Balances as of December 31: Inst.341 Five contracts totaling P1.85 d.024.84 on all contracts except on defaulted contracts) 79. Interest should be recognized in the period earned.85 b.800 of the 2012 installment accounts as uncollectible. in each case after 3 monthly installments were paid. Contracts Receivable -2012 250.000 Installment sales 265. . P95.Sales: Cash sales P126. The following data were taken from the records of Camille Appliance Company before its accounts were closed for the year 2013.800 256.000 During 2013.084. Contracts Receivable -2013 238.2013: Merchandise inventory 58.252.000 272. P99.000 96.000 Inst. January 1.85 49. physical. The total realized gross profit on December 31. because some customers can no longer be located.250 Subsequent installments (including interest of P9.060 Purchases.184.200 Operating expenses 100.000 94.300 Repossessed inventory 180 Cash collections on installment contract 2013: Down payments 66.024.000 Inst. the company wrote off P9.000 of the 2011 installment accounts and P2.000 Cost of installment sales 240. 2013 New merchandise 209.87 c.060 were defaulted. P99.2013 is: a. The company sells exclusively on the installment basis and its uses the installment method of recognizing profit: 2009 2010 2011 Installment sales P400. Contracts Receivable -2011 220.000 P420. 400 after costs reconditioning estimated at P400. The gross profit rates on installment sales were 40% in 2012 and 42% in 2013. The following information are taken from the books of Jing: December 31 2013 2012 Installment contracts receivable. P157. are valued at P200. which started operations on January 2. No repossessed video equipment was sold in 2012 or 2013 for more than the unpaid balance of the original contract. Jing Trading Company. The merchandise had been purchased in 2011 by a customer who still owed P5.156 50. The P2.950 P1. 2012 P2. Information regarding the repossessed goods are not recorded in the books but are kept on a memo basis. P59.000 at the date of the repossession.000 75.500 Installment contracts receivable. Jing repossesses the merchandise and writes this off to a Loss on Defaulted Contracts account.000 Loss on defaulted contracts 4.2013.250 Additional information: a.2012.000 c. d. Proceeds from the sale of these goods are credited to the Loss on Defaulted Contracts account.156 d.250 2. a customer defaulted and the company repossessed merchandise appraised at P2.000 P31. b.000 balance of the Installment Contracts Receivable 2012 account is currently due and collectible.156 b.2013 is: a. all of which were repossessed from 2012 contracts.750 P1.275 250 Allowance for defaulted contracts 2. P61. A further analysis of the Loss on Defaulted Contracts accounts showed the following breakdown: 2012 2013 Contracts Contracts Contracts written off P3.325 The repossessed goods on hand on December 31. c. The total comprehensive income on December 31.500 Less: sales of repossessed goods 800 175 Loss a defaulted contracts P2. The rate of bad debts loss for 2013 is estimated to be the same as the 2012 experiences rate based on sales: . Also during 2013. Whenever a contract is in default.000 - Sales 125. P60. 2013 40. sells video equipment on installment terms. A 27.000) 250. D 41. C 16.000 Gross profit rate 40% Deferred gross profit. P3. B 7.300 ANSWERS 1. A 4. A 8. December 31. P4.675 and P10.000 + P280.2013 P80. 12/31/13 (P100. A 38. C 10. 12/31/13 400. Installment sales P500.675 and P9. C 19. D 18.300 b. collections x gross profit rate. A 23.000 Installment accounts receivable.000 Total realized gross profit (P180. D 32.000 3. A 29.300 c.000 P700. A 43. D 33.000 Or Deferred gross profit(P500. B 6. B 46.000 – P250. D 17. A 30. D 3. A 21. C 45. C 42. P3. A 26. 2012 sales 2013 sales Collections during 2013 P600. B 39. B 24. A 20. A 48.675 and P10. B 2.000 Collections 100.675 and P9. A SOLUTIONS AND EXPLANATIONS 1. Installment account receivable. A 49. C 25. A 22. D 28.000 .300 d. A 50. C 12. B 5. A 9. B 47.000) 50% Deferred gross profit. P3. D 31. 12/31/13 P200. C 15. D 35.000 2.000x50%) 50. C 11. The required balance of the allowance for Defaulted Contracts account and the realized gross profit on December 31. B 13. B 44.000 Gross profit rate 30% 40% Realized gross profit P180. The answer can be computed by using the basic formula.2013 from 2012 sales are: a.000 Realized gross profit.000 P280.000) 460. A 14.000 Gross profit rate (P250. 12/31/13 P200. A 34. B 40. A 37. C 36.000/P500. 000 6.000) = 40% 7.000 Total comprehensive income P300.000 Gross profit rate 40% Realized gross profit P240.000. Realized gross profit (P2.000/P1.000 8.000 40.000 Deferred gross profit. Installment sales P60.020.P2.000 Gross profit rate (P500.000) P13.000 9. 2012 Sales 2013 Sales Total . 12/31/13 P200.000) 50% 100.000 x 40%) P808.020.000 Less: Collections P35.00 cost of regular sales 300. Regular sales P600.000 4.000 Deferred gross profit. Deferred gross profit.000 Realized gross profit (P300. 12/31/13 20. 12/31/13: Installment accounts receivable.000 5.000 Deferred gross profit 320.000 Installment accounts receivable.000. 12/31/13 P5.000 .980.000 Accounts written off 5.000/40%) P1.000 x 40%*) 120. 12/31/13 P200.000/P800.400. Installment sales (P560.000 Less: installment accounts receivable. Installment sales P800.592. 12/31/13 800.000 Collections P600. 12/31/13 P6.000 General and administrative expense 100.000 Gross profit rate 30% Deferred gross profit. 12/31/13 (P16.000 Cost of installment sales 480.000 Gross profit on regular sales P300.000 *Gross Profit Rate (P320.000 Gross profit rate 40% Deferred gross profit.000 Total realized gross profit 400.000 Realized gross profit on installment sales: Collections P200. 12/31/13 P150.750/P755.000 Gross profit rate (P270.000 Loss on repossession P(850.000) 250.000.000 Installment collections excluding interest: (P325.000 Less: Unrecovered cost Unpaid balance P2.000 Less: Unrecovered cost (unpaid balance) 2.000.150. 31 840.000 Installment sales 950. (1) Profit is recognized at the point of sale Fair value of repossessed property P1.000 Total P1.000) During 2011: 2010 sales (P90.000.000 1. Deferred gross profit (gain) P270.000.000 Deferred gross profit (P2.000 Gross profit rate (P339.000 Loss on repossession P(50.000 Total collections 400. December 31 P378.000) (2) Profit is recognized in proportion to collections Fair value of repossessed property P1.Installment sales P1.000 P1. Installment accounts receivable.000 Gross profit rate 45% Deferred gross profit. January 1 P755.000/P900.200.000) .000/P30%) (500.000) 30% 120.000/40%) ________ (500.000 Realized gross profit: Down payment P150.000) 45% Realized gross profit 389.000 – P75.150.200.700.705.000) Installment accounts receivable 12/31/13 P500.000/30%) (300.000 P1.000.000 Deferred gross profit.000 Collections (RGP/GPR) During 2010 (P150.250 Installment accounts receivable.000 10. December 31 P840.000) 2011 sales (P200.000 P2.000 12.000 x 40%) 800.000 11.000 Collections 865.000 Less: Installment accounts receivable. Dec. 000 P1.000/P1.000 P45.500 P-0- 14.000.000) 15.000) 50% Deferred gross profit. December 31.000 Installment accounts receivable.000) Installment accounts receivable.000 Collections during 2013 P18.728. (1) Total realized gross profit 2011 2012 2013 Deferred gross profit before adjustment P10. end 12.000/32%) P300.000 2011 sales (P96.387.750 P423. 1/1/13 P12.000) (2) Total collections in 2013 2011 2012 2013 Installment accounts receivable.000.500 P1.000 Total (P233.900 P96.000 Gross profit rate (P500.500 (Total.162.012.608.000 x 35%) 4. 12/31/13 P6. P3. 12/31/13 P3.000 P170.000 x 32%) ______ _______ 41.890.300 P54. (1) total realized gross profit 2013 2012 2011 Installment accounts receivable.500 P28.400 Total (P76.000 -0- Collections during 2013 P3. end: 2011 sales (P12.000) Accounts written off (50.500 P1.000 P907.000 x 34%) 13. Installment sales P1.000 130.113. 12/31/13 P1.300 P15.500/35%) P30.125 3. The balance of Deferred Gross Profit Account on December 31. 12/31/13 P9.000 Deferred gross profit.025.600 Realized gross profit.500 Gross profit rates 32% 30% 28% Realized gross profit. 12/31/13 P400. 12/31/13 9.000 Collections (150. 12/31/13 800.625 P8.500 Installment accounts receivable.2013: 2013 2012 2011 Installment accounts receivable.000 P-0- Gross profit rates 32% 30% 28% Deferred gross profit.000 40.044.025.362.000 2012 sales (P28.512.728.600 2011 sales (P130.000 16.512.2013 is computed follows: .125 P3. 13.200 2012 sales (P40.250) (2) deferred gross profit. beg 2011 sales (P10.500 P5.900/34%) 85. 500/P425.500 Gross profit rate (P161.000 P60.510 Total realized gross profit P245.2013 (New) (92. (1) Realized gross profit.000 Total (P75.500 Gross profit on regular sales (30%) 115.000 Cost of regular sales 269.000 Unrecovered cost: Unpaid balance P7.000 Installment accounts receivable.000 Collections (150. 2012 2013 Sales P300.000 225.000/P120.510) Schedule 2: Installment sales P425. December 31.000 Less: credit for repossession (unpaid balance) 7.200 -0- Collections P97.000 P425.000 P450.000 200.500 Gross profit on installment sales P161.2013 Regular Sales P385.500 Realized gross profit on installment sales (Sched 1) 128.000) 45% 2013 sales (Schedule 2) _______ 38% Realized gross profit.000 Purchases 555. December 31. 1/1/13 P120.000 Gross profit rates: 2012 sales (P54.500 263.000) Cost of sales 533.200 .000 P150.000) (150.000 Gross profit rates 30% 40% Deferred gross profit. 12/31/13 P44.500 Total (P129. 12/31/13 P50.010 P85. 12/31/13 15.000) Accounts written off (100.800 P225.000) 17.000) (150.000 Cost of regular sales (70%) 269.2013 P70. 12/31/13 P15.010 Schedule 1: 2012 2013 Installment accounts receivable.000 Inventory.000) 38% (2) loss on repossession Repossession merchandise P3. January 1.000) Installment accounts receivable.000 Cost of installment sales: Inventory.000 Total credit 105. allowance on the equipment traded. Total realized gross profit on December 31. The total collections applying to principal as of December 31.833) 50.000 Gross profit rate (P679.000 Actual value: Estimated sales price 25.200 Gross profit P43.2013 is computed below: 2012 2013 Collections during 2013 P240.600 Unearned interest income (P7.167 + P3. so no income is yet to be recognized.000 is not yet fully recovered. 22.000 – P1.730.667) 19.240 3.250 Gross profit(25.000 + P3. The realized gross profit can now be computed as show below: Collections Downpayment: Cash 5.900. Collections during 2013 P32. X 5.200 – P2.000 Over allowance P10.000) 45% Realized gross profit.080 20.000 Installment collection (3 mos.000 Gross profit rates on sales 25%/125% 20%/120% Realized gross profit P48.633/ P86.510.000) P1. 2013 P778.000 + P30.in value P30.767) Installment sales P86.000 Gross profit rate: Installment sales: Notes receivable (P32.600) P97.510.000 x 15%) 3.500 21 Zero.25% Realized gross profit P16.833 Cost of installment sales (P45.in 20.000 Less: Reconditioning Cost 1.200 x 45%) 3. First the over.000) 15. 2013 is only P330.667 Total (P74.750 5.000 P26.000 Actual value of Trade.000 Total 40.500/ P1.000) 43.000 25.000 + P62.000 .000 20.633 Gross profit rate (P46.000 + P1. because the total cost of P2.600) (10. Collections during 2013 (P1.000.000 The over allowance is treated as a deduction from the selling price of new equipment.000 P160.in should be computed as follows: Trade.000).000 (P300.680.960 Loss on repossession P(960) 18. Deferred gross profit (P7. 740 (11.000/500.500 Collection: During 2012 (630) During 2013 (450) (900) Repossession (unpaid balance) (24) - Installment accounts receivable.000) 20% Realized gross profit.000) .000 Installment Sales P840. Installment accounts receivable P320.000 23.000 27.000 (P27.000/ 75.200 P1.000 26.000 Loss on repossession P(15.000 ADD: Collections 360.000 Gross profit rate (250. Gross Profit Rate – (15.000) 50% REALIZED GORSS PROFIT 50.2/3% / 166-2/3%) 40% Deferred gross profit. Installment accounts receivable-end: Unrealized gross profit-end 192. 12/31/2013 P128.400 (P38.000 Gross Profit Rate on Sales (66. Collection during 2013 100.400 + 180.000 25. In Thousand Pesos 2012 Sales 2013 Sales Installment sales P1.000-P16.4 P180 Total balance is P218. 12/31/2013 8.000 Divide by GPR on sales (66-2/3% / 116-2/3%) 40% 480. 12/31/2013 96 600 Gross Profit rate (GP/IS) 40% 30% Deferred Gross Profit. 24.000x34%). 12/31/2013 P38.000 Less: Unrecovered cost 200.000 135.000) is 3. the unrealized gross profit relating to the unpaid balance of P11.000 Unpaid balance 65. Fair market value of repossessed merchandise P120.000) 28. The inventory of repossessed merchandise is to be decreased by this amount. 000 x 25%) 100. Appraised value of repossessed merchandise P1.000) P277. Fair value of repossessed merchandise P6.840 5.000 P72.400 9.2013 P37.200 6.000 Collections: Downpayment 3.31.33%) 80.600 Deferred gross profit (9.000 x 33.000 x 20%) P50.000 Total P230.2013 is (P37.31.000 Charge sales (400.275 Loss on repossession P775 .800 Unrecovered Cost: Unpaid balance: Sales 16.500 x 35% *) 1.500 P240.2013 P9.500 Less: Unrecovered cost: Unpaid balance 3. Gross profit rate based on sales: Cash (25%/125%) 20% Charge (33-1/3% / 133-1/3%) 25% Installment (50% . 31.000 Divide by GPR (GP/IS) 24% 30% Installment accounts receivable.500 Less: Deferred gross profit (3.600 x 40%) 3.29. Dec.150%) 33.000 Installment Sales (240.760 Gain on repossession P1.500 + 240.225 2.200 Installment 3.000 32.000 Total balance of receivable on Dec.33% Total realized gross profit: Cash sales (250.500 31.040 30. 2012 Sales 2013 Sales Deferred gross profit – Dec. 000 45.000 Cost of Sales: Inventories.000 27.500 193. 2012 2013 Sales Sales Collections: Downpayment (1/3 of sales) .230 represents the total realized gross profit based on 2013 collections of Installment Accounts Receivable of 2011 and 2012 sales.000) 35% 33.500 Gross Profit P166.000 Gross Profit rate (schedule 1) 44% 45% Realized gross profit on Installment Sales 33.000 Total 77.000 Inventories 12/31 60.500 147.400 .000 x 45%) .000 Collection of installment receivables 77. 16.650 Realized Gross Profit (P131.000 Realized gross profit on Cash Sales 2013 (P37.500 Cost of sales 200. 1/1/13 P17. 2011 2012 Sales Sales Collections: Installment accounts receivable.880 81.000 193. P76.000 Installment 330.000 Total 260.000 262.530) P33.800 / 8. 1/1 45.000 70. P110.000 235.500 - Purchases 215.650 Schedule 1 2013 2012 Sales Sales Sales: Cash 37.880 97.*Gross profit rate (P2.400 P205.500 P114.500 Gross profit rate (GP/IS) 45% 44% 34.000 Total 367.000 180. 8 On the second installment. 12/31/13 P6.264 P69.966 Total realized gross profit: (P6. . on the first installment. a profit of P120 is realized as shown below: Sales P1. Installment accounts receivable.400 179. a profit of P96.230 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 35.400 179.264 + P69.650 Cost of sales 924 Gross profit P726 Gross profit rate 44% Realized gross profit Collections P220 Gross profit rate 44% Realized gross profit P96.000 Cost of repossessed merchandise: Appraised value P460 Add: reconditioning cost 60 520 .800 12/31/13 Total credits 17.400 Gross profit rate 36% 39% Realized gross proft.966) P76. 25.80 is realized which is computed as follows: Installment sales P1.600 Less: credit for repossession ______ 200 Collections during 2013 17. 000 ______ _______ 37% Realized gross profit P8.020 277.000 Installment contract receivable.200 Less deferred gross profit (P2.200 + P3.407 P93.80 2013 71.000 Unrecovered cost Unpaid balance (P5.006.000 P1.452 Loss on repossession P(452) .000 35% 2012:146. gross profit P480 Gross profit rate (P480/P1.5 The loss on repossession is computed as follows: Actual value of repossession merchandise: Resale price P2.200) P2. Appraised value of repossessed merchandise P1.70 Total P172.000 Unrecovered cost: Unpaid balance P2.200 x 40%) 880 1.400-P3. 1/1/13 P24. The realized gross profit is computed as follows: Year of sales 2011 2012 2013 Installment contract receivable.910 Gross profit rate: 2011: 133. 12/31/13 .407 2012 93.438.200 _______ Collections 24.020 191.8 P71.852.740/602.000 34% 2013:22.460 P602.440 410.7 Total realized gross profit.880/432.020 274.438.000 Less: Reconditioning cost P300 Gross profit (P2.020 P344.910 Credit for repossession ______ 2. 67.000 x 35%) 700 1.320 Loss on repossession (P320) Gross profit rate (P1. 12/31/13: 2011 P8.090 Total credit 24.000/380.006.200 Less: deferred gross profit (P2.200 x 34%) 748 1.820 191.000 ) =40% 37.000) 48% Realized gross profit: Collections: P250 Gross profit rate 48% Realized gross profit P120 36. 600) (7.500 225.000 P375.500 Purchases 435.000 Credit for repossession (6.500 Cost of goods sold 425.625 Loss on repossession Value of repossessed merchandise P6.000 .250 11.875) P40.000x25% 3.000 Unrecovered cost: Unpaid balance 15.000 = 50% profit rate Inst.000 Gross profit rate (schedule ) 50% 45% Realized gross profit (P141.500 Gross profit rate 2011:P60.500 P80. 9/30/12 (P75.000 Less: cost of installment sales- Cost of goods sold: Inventories.000 P62.38.625 P101.250 225.000 25% 2012:P68.850) Total realized gross profit after loss on repossession P49.500 Less: inventories.000 27.250 Schedule 1 : gross profit rate 2012 sales: Gross = Deferred gross profit – 2012.600 Loss on repossession (P5.000 Installment contract receivable. Contract rec’ble – 2012.000/P240.125 P22. The computation is as follows: Year of sales 2012 2013 Installment contract receivable.775 39.500 57.000) Total credit 87.000 Less: deferred gross profit 2011:P15. 1/1/13 P100. 9/30/12 P62.000-P2. This is computed by deducting the loss on repossession from the total realized gross profit: Year of Sales 2011 2012 2013 Total Collections P72.000 2013 sales: Installment sales P375.000 Cost of goods available 497.750 2012:P16.000 16.000x27% _____ 4. 12/31/13 (12.500) 72.5% 2013:P84.250) - Collections 81.500) (150. 9/30/2012 P50. 9/30/2012 100.250) (P2.750/P250.000 P9.000 ______ ______ 28% Realized gross profit P18.400 Unrecovered cost 11.000/P300.000 P17. 400 The P1. (1/1/13) Installment contract receivable.31 P620.500) 218.000) P19.76 The loss on repossession is computed below: Fair value of repossessed merchandise P560 Less: unrecovered cost Unpaid balance (sch.000 beg.133. 30 P1.600 Adjusted loss on repossession (P1.8 1287. 1) P979.000 - Collections 49.600 P50. P160 1.20 Nov. 25.31 640 P19.250 Gross profit on installment sales P168.69 41.44 153. Less: cost of regular sales (70% x P312.750 206.000 x 40%) 2.000 Less: deferred gross profit (P6.000) 45% 40.750 Gross profit rate: (P168.24 612. 30 160 6.100 adjusted loss is determined as follows: Value of repossessed merchandise P2.69 Gross profit rate (P600/P1.100) .000 beg. (1/1/13) Total credits 55. P80. The realized gross profit is computed as follows: Collections applying to principal (Sch.000 Gross profit rate (schedule 1) 40% 48% Realized gross profit 12/31/13 (P70.400 3. 31 160 5.31 x 37.67 154. P70.600) 37.440 Oct.20 152.5% Realized gross profit rate P232.000 105.56 1.750/P375.000 Less: credit for repossession 6. 31 160 7.000 is the sum of the realized gross profit in 2012 and 2013 which are computed as follows: 2012 2013 Installment contract receivable.33 979.000 95.000 105.500 Unrecovered cost: Unpaid balance 6. 30 P160 .31 Less: deferred gross profit (P979.000 P200.07 Loss on repossession (P52.5%) 367.600 Sept.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.64 Dec. 1) P620. 210 59. Deferred gross profit before adjustment: 2011 sales P11. 12/31 10. 12/31/13 P90.000 Merchandise inventory.000 Gross profit P60. 12/31 26.000 90.2013 is computed as follows: 2012 2013 Sales Sales Installment sales P400.000 Purchases 120.000 104. 31.000 Gross profit rate (P60.000) Installment contract receivable.000 Collections in 2012 (210.000 200.810 Total 149.000/P150. The total realized gross profit is computed below: . end (IAR end X GPR) 2011 sales - 2012 sales (P42.360 Less: deferred gross profit.000) Collections in 2013 (150.000) (300.000 43.000) 48% 42.000 P60.500 + P1. 12/31/13 (P76. Trade-in) P200.000 Cost sales: Purchases P100.000 Gross profit P96.350 2012 GPR: P62.000 Goods available for sale 130.000 Gross profit rate (GP/IS) 40% 30% Deferred gross profit.000 P500.000/P155.550 2012 sales 62.500 x 42%) 42.Schedule 1 – gross profit rates: 2012 Sales: Installment sales P150.000) 40% 2013 Sales: Adjusted installment sales (P198.000 Gross profit rate (P96. 1/1 P10.000 = 40% 44.000 2013 sales 75.500.810 2013 sales(P100.000/P200.000 Cost of sales: Merchandise inventory.000) P16.000 Merchandise inventory. 12/31/13 40.010 Total realized gross profit.000 x 40%) P16. The balance of deferred gross profit on Dec. 000 Less: Installment receivable – 2013.000 x 40%) 2.000 Total 533.000 Less: unrecovered cost Unpaid balance: 2011 accounts P2. 1/1 70.500 Total (P129. Total realized gross profit is computed below: Year of sales 2012 2013 Sales Sales Installment receivable.000 P5.000 8.000 Cost of regular sale (70% x P385.500 .000 Installment receivable.800 Gain on repossession P200 45.12/31/13 140.000) 45% 2013 sales P425.000 Gross profit rates 45% 38% Realized gross profit.000 Installment sales Cost of installment sale: Inventory.000 5.000 Gross profit rate 40% Realized gross profit on 2013 sales P44.750) - Collections 97.000) (200.762.400 3.000 x 40%) 4.000) Defaulted balance (7.50 P85.2013 Installment sales: Unrealized gross profit. 2013 P100.000/P120. 12/31/13 P43.000 The gain (loss) on repossession is computed as follows: Actual value of repossessed merchandise: Sales price P10.000) 269.000 P425. 12/31/13 (15.000 Gross profit (P10.000 Inventory.000 2012 accounts 6.000 Deferred gross profit: 2011 account(P2.500 Gross profit 161.250 225.000 Divided by GPR on sales ÷ 40% P250.200 4.000 x 40%) 800 2012 account(6. 12/31 (95.000 Purchases 555.562.000 Less: reconditioning cost P1.000 Collection from 2013 sales 110.50) Gross profit rate: 2012 sales (P54. 1/1/13 P120.000) Repossession 3.500 263. 298 Value of repossessed car P40.000 Less: unrecovered cost: Unpaid balance P7.700 23.298 Repossession gain (loss) P(13.47) P136.700 Cash received at time of sale 35.500 26.50 Loss on repossession P1.GPR(P161.000 Installment sales collected Downpayment (P265.7614 Unrecovered cost P53.616.750 2013:P90.000 Multiply by cost rate .000 x4 20.000 Less: trade-in overallowance P85.700 Multiply by gross profit rate .62 Gain (loss) on repossession is computed as follows: Adjusted selling price P216.000 x ¼) P66.262. Deferred gross profit.700 Defaulted balance P70.298) 48.2386 Realized gross profit as of December 31.250 Realized gross profit P11.14% Gross profit 51.000 Installment collected: P5.750 Less: Expenses 1.700 In 2013: P5. Cash sales P126.250 .000 Less: unrecovered cost 53.500 Net income on installment sales P10.700 100% Less: cost of sales 165.86% Value of old car trade-in P 81.000-P81.000 x 2 10.50 46. before adjustment P38.000 Less: deferred gross profit applicable to Uncollected installment accounts: 2012: P16. The computation of the realized gross profit is shown below: List price P220.750 x 45%) 3.000 146.300 Adjusted selling price P216.000) 38% The loss on repossession is computed as follows: Value of repossessed merchandise P3.750 Deferred gross profit (7.000 Total collections in 2013 136.250 47.250 x 30%/130% P3.50 4.500/P425.262.487.700 3.700 Less: collections In 2012 (No.2013 P32.000 76.000 x 25% 22. 49 136.156 Operating expenses 96.2) 37. 31 33.156 Loss on repossession (Sch.89 53 Fourth month 689. Dec.1) (20. Total realized gross profit (Sch.000) 37. Contract receivable. 31.317.35 689 6.1) P157.000 Installment sales at cash 376. Dec.49 Total collection P262.000 Cash sales 250.156 Schedule 1 – realized gross profit 2011 2012 2013 Sales Sales Sales Inst.000 P1.85 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 1.300 Goods available for sale 267.940/P376.75% 49.000/106%) Total sales at cash sales price Cost of sales: Merchandise inventory.940 Gross profit rate (P141.060 Gross profit 141.Subsequent installments P79.2013 P60.49 Gross profit rate (sch.000 P250.060 Purchases 209.43 53 Total interest earned 20.2) (1.84) Interest on defaulted contracts (sch.000) Total realized gross profit loss on repossession 156.341 Less: interest (9.000 .067.35 53 Third month 689.060 265 Second month 735 795 7.35 742 6.360 Less: merchandise inventory.75% gross profit rate is determined as follows: Sales: P126.000 sales price (P265. 12/31/13 P99. January 1 P58.300 234.75% Realized gross profit.67) 70.67 Schedule 2 – gross profit rate: The 37.252.000 P420.317.024.000 Net income. sales income1% collection (4-3) price2-4 x1 First month P1. 1/1/13 P110. Inst.000) 51.000) Accounts written off (9.750) Collections during 2013 25.750 Sales of repossessed goods (800) Value of repossessed goods (200) Total 3. 12/31/13 P10. 31.000) .000 3. Contract receivable.000 Divided by 2012 sales ÷75.loss o repossession: Appraised value of repossessed merchandise P2.000 Less: unrecovered cost Unpaid balance 5. 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 3.000 x 40%) 2.2013 from 2012 Sales is computed below: Installment contract receivable – 2012.750 Gross profit rate – 2012 40% Realized gross profit from 2012 sales.500 Installment contract receivable – 2012. receivable written off – 2012 sales (3.200 P58.000) (2.156) P27. - Collections 68. 31.000) (238.000 x 4%) P5.675 The realized gross profit on Dec.980 Schedule 2 .400 Less: reconditioning cots 400 Actual value at time of repossession 2.000 Deferred gross profit (P5.000 Less: loss on defaulted contract – 2013 sales 1.000 155.000) (92.000 Loss on repossession P(1.2013 P3.200 182.325 Required balance of allowance.000) Installment contract. 12/31/13 (2.976 P70.000 Rate of bad debt loss 4% Estimated loss from 2013 sales (125.000 Gross profit rate (GP/IS) 40% 38% 39% Realized gross profit (P157. Dec. 21/31/13 (28.800) - Defaulted accounts (5.300 . 1/1/13 P31.
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