AFAR-Practical Exercises PDF

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AFAR-Practical Exercises Directions: Choose the letter of the correct answer for each of the following questions. Provide your solutions in good form to support your final answer. Question No. 1: SS Company started operations on January 2, 2020. It's installments contract receivable as of December 31 of the same year amounted to P1,500,000. It's deferred gross profit on December 31 before adjustments is equal to P1,050,000. SS Company's gross profit based on sales is 25%. What is the realized gross profit on sales for 2020? (A) P1,350,000 (B) P1,125,000 (C) P810,000 (D) P675,000 Question No. 2: Gross profit rates of BB Company were 35%, 33%, and 30% of sales for the years 2018, 2019 and 2020, respectively. The following account balances are available at the end of 2020: YEAR OF SALE Installment Accounts Receivable Deferred Gross Profit (before adj.) 2018 P6,000 P7,230 2019 61,500 60,750 2020 195,000 120,150 What is the total realized gross profit to be reported in the Statement of Comprehensive Income for the year ended December 31, 2020? (A) P107,235 (B) P102,105 (C) P61,650 (D) P97,235 Question No. 3: The following information are obtained from the books of accounts of Robina Inc. on June 30, 2020: Deferred Gross Profit balance (after adjustments) P202,000 Total Collections on installment sales 440,000 Gross Profit Rate based on Cost 25% Robina Inc. uses the installment method of accounting for its sales. What is Robina's total installment sales for 2020? (A) P1,560,000 (B) P1,440,000 (C) P1,450,000 (D) P1,010,000 Question No. 4: MC Corporation sells car on a three-year installment sales contract. On December 31, 2020, the last day of MC's first year of operations, the company recorded a total of P1,000,000 in sales, with P700,000-worth of cost of installment sales and a total operating expenses of P80,000. These amounts are exclusive of any adjustments. The total collections during the year including interest and financing charges of P100,000 is P500,000. What is the net income of MC Corporation for the year-ended December 31, 2020? (A) P220,000 (B) P140,000 (C) P150,000 (D) P120,000 Question No. 5: In 2020, a merchandise was sold on installment basis by Metro Sales Company for P80,000 at a gross profit rate of 25% on cost. During the year, a total of P42,500, inclusive of interest of P12,500, was collected on this contract. In 2020, no collection was made on this sale, and so, the merchandise was repossessed. The fair value of the merchandise is P34,000 after reconditioning costs of P4,000. What is the gain or loss on repossession? (A) P(10,000) (B) P(14,000) (C) P10,000 (D) P14,000 Question No. 6 Azucar Inc. which began operations on January 2, 2020 appropriately uses installment method of accounting. The following information pertains to Azucar's operations for the year 2020: Installment Sales P1,000,000 Regular Sales 600,000 Cost of Installment Sales 500,000 Cost of Regular Sales 300,000 Operating Expenses 100,000 Collections on installment Sales 200,000 In its December 31, 2020 Balance Sheet, what amount should Azucar Inc. report as deferred gross profit? (A) P400,000 (B) P500,000 (C) P320,000 (D) P150,000 Question No. 7: TP Company sold goods on installment. For the year just ended, the following were reported: Installment Sales P3,000,000 Cost of Installment Sales 2,025,000 Collections on installment Sales 1,800,000 Repossessed accounts 200,000 Fair value of repossessed merchandise 120,000 The repossession resulted to: (A) Gain of P5,000 (B) Loss of P80,000 (C) No gain, no loss (D) Loss of P15,000 Question No. 8: In July 2020, Barbados Company, who uses the installment method of accounting, sold land costing P90,000 for P240,000, receiving P35,000 cash as down payment and mortgage note for the balance payable in monthly installments.

Installments received in 2020 reduced the principal of the note to a balance of P200,000. The buyer dafulted on the note at the beginning of 2021 and so, the property was repossessed. The property had an appraised value of P165,000 at the time of repossession. The realized gross profit in 2020 and the gain (loss) on repossession in 2021 amounted to: Realized Gross Profit Gain (Loss) on Repossession (a) P15,000 P(90,000) (b) 25,000 90,000

(c) 9,000 (2,500) (d) 2,500 3,500 Question No. 9: On April 1, 2020, CCE Electronics sold for P7,000 a refrigerator whcih had a cost of P4,550. A downpayment of P750 was made with the provision that additional payments of P625 be made monthly thereafter. Interest was to be charged at a monthly rate of 2 per cent on the unpaid balance of the principal; the monthly installment was to apply first to the interest then to the balance of the principal. After completing four months of installment, the customer defaulted and the refrigerator was repossessed. At this time, the fair value of the refrigerator (used) was estimated to be P1,875. The gain (loss) on repossession and the realized gross profit to be recognized in 2020 are: Realized Gross Profit Gain (Loss) on Repossession (a) P1,137.50 P(847.98) (b) 983.78 P(847.98) (c) 875.00 P(562.50) (d) 983.78 P562.50 Question No. 10: Nexus Orbital Company, which began operations on January 1, 2019, appropriately used the installment method of revenue recognition. The following information pertains to Nexus Orbital's operations for 2019 and 2020: Particulars 2019 2020 Sales P300,000 P450,000 Collections from 2019 Sales 100,000 50,000 Collections from 2020 Sales 150,000 Accounts written off from 2019 sales 25,000 75,000 Accounts written off from 2020 sales 150,000 Gross profit rates 30% 40% What amount should Nexus Orbital Company report as deferred gross profit in its December 31, 2020 Statement of Financial Position from 2019 and 2020 sales? (A) P112,500 (B) P125,000 (C) P75,000 (D) P80,000 Question No. 11: Whiteboard Trading accounts for its sales under the installment sales method. Installment sales in 2020 were made at 35% gross profit rate. On January 1, 2020 and December 31, 2020, its ledger accounts include the following balances: January 1, 2020 Balances December 31, 2020 Balances Installments Receivable, 2018 P39,424 Installments Receivable, 2018 P-0Installments Receivable, 2019 158,720 Installments Receivable, 2019 43,008 Deferred Gross Profit, 2018 11,827 Installments Receivable, 2020 102,912 Deferred Gross Profit, 2019 63,488 Deferred Gross Profit, 2018 11,827 Deferred Gross Profit, 2019 63,488 Deferred Gross Profit, 2020 64,691 The total realized gross profit for the year ended December 31, 2020 was (A) P92,518 (B) P99,850 (C) P86,784 (D) P99,686 Question No. 12: Brown Derby Company began operations on June 1, 2020. The following information were extracted from its records at year-end. Cost of installment sales, P2,991,424; Cost of regular sales, P1,680,000. Mark up on installment sales is 40% of cost while regular sales is 33-1/3% bases on sales. At the end of 2020, the balance of Installment Accounts Receivable is P2,520,000; accounts receivable is P1,176,000. Operating expenses (includes repossessions) totaled 75% of the realized gross profit. What is the net income for the year ended December 31, 2020? (A) P329,142 (B) P546,000 (C) P543,984 (D) P279,918 Question No. 13: On December 31, 2019, Marvic Company sold construction equipment to Dream Company for P1,800,000. The equipment had a carrying amount of P1,200,000. Dream paid P300,000 cash on December 31, 2019 and signed a P1,500,000 note bearing interest at 10%, payable in five annual installments of P300,000. Marvic Company appropriately accounts for the sale under installment method. On December 31, 2020, Dream Company paid P300,000 principal and P150,000 interest. For the year ended December 31, 2020, what total amount of revenue should Marvic recognize from the construction equipment sale and financing? (A) P250,000 (B) P150,000 (C) P120,000 (D) P100,000 Question No. 14: The following data pertain to Violet Rays Company which sells appliances on the installment basis. Particulars 2018 2019 2020 Installment Sames P300,000 P450,000 P768,000 Cost of Installment Sales 100,000 50,000 460,800 Installment Accounts Receivable at: From Installment Sales made during: 2018 2019 2020 January 1, 2020 P38,400 P480,000 -

December 31, 2020 96,000 P512,000 Repossessions on defaulted accounts were made during 2020 as follows: From Installment Sales made during: 2018 2019 2020 Account balance P16,000 P8,000 Net resale value of repossessed merch. 7,200 5,600 The total realized gross profit from installment sales during 2020, after necessary adjustments is:

(A) P14,976 (B) P100,800 (C) P154,560 (D) P268,736 Question No. 15: BBB Computer Store started its operations in January 1, 2018. During the year, it had cash sales of P1,375,000 and installment sales of P3,300,000. BBB imposes a mark up on cost of 25% for cash sales and 50% for installment sales. During 2018, installment receivable balance amounted to P1,230,000. How much is the realized gross profit for 2018? (A) P965,000 (B) P660,009 (C) P935,000 (D) P1,100,000 Question No. 16: Ronda, a dealer of vehicle, ssles exclusively on installment basis. One of its customers, Mr. Yu, purchased a car for P1,361,250. The cost to Ronda was P598,950. After making an initial payment of P181,500, Mr. Yu defaulted on subsequent payments. Ronda lost no time in repossessing the car which by this time was appraised at a value of P397,500. Ronda had to incur additional costs of repairs of P49,500 before the car was subsequently resold for P825,000 to Mr. Zi who made the initial payment of P206,250. How much is the loss on repossession on the sale? (A) P99,000 (B) P121,590 (C) P281,160 (D) P231,250 Question No. 17: SM Appliances Inc. sells its inventories under installment contract. The 2017 book of the company before necessary adjustments has provided the following data: DEBIT CREDIT Installment receivable - 2015, Jan. 1, 2017 4,000,000 Installment receivable - 2016, Jan. 1, 2017 6,000,000 Installment receivable - 2015, Dec. 31, 2017 1,000,000 Installment receivable - 2016, Dec. 31, 2017 3,000,000 Installment Receivable - 2017, Dec. 31, 2017 5,000,000 Installment sales - 2017 (exclusive of sales of repossessed inventory) 10,000,000 Deferred gross profit - 2015, Jan. 1, 2017 600,000 Deferred gross profit - 2016, Jan. 1, 2017 ? Deferred gross profit - 2015, Dec. 31, 2017 ? Deferred gross profit - 2016, Dec. 31, 2017 1,200,000 Deferred gross profit - 2017, Dec. 31, 2017 3,200,000 The following additional information are provided for the year 2017:  On March 1, 2017, a 2016 installment receivable is written off and impairment loss of P1,400,000 is recognized under direct method approach.  On October 1, 2017, the company repossessed inventory from 2017 installment contract. The fair value of the repossessed inventory is P1,000,000 while the loss on repossession recognized is P200,000.  On December 1, 2017, the repossessed inventory on October 1, 2017 was resold at a selling price of P1,500,000 after being reconditioned at a cost of P200,000.  On December 31, 2017, a 2015 installment receivable was factored to a bank at its book value.  For 2016 contracts the total collections made during 2017 amounted to P1,000,000 while for 2017 contracts, the total collections made during 2017 is P3,000,000. What is the total realized gross profit to be recognized in the Income Statement for the year ended December 31, 2017? (A) P2,250,000 (B) P2,320,000 (C) P1,600,000 (D) P1,800,000 Use the following information for the next two (2) questions. On October 1, 2020, Abenson Inc. sold a TV set at a price of P100,000 with production cost of P84,000. The contract provides that 10% is payable on the date of contract and an old cellphone will be received as additional downpayment within 10 days witj agreement that trade-in value of P30,000 will be allowed for such old cellphone. On the same date, Abenson Inc. received a 1-year, 10% interet bearing note payable in four equal quarterly installments starting December 31, then March 31, then June 30, and finally, September 30 for the balance of the price. The interest will be based on the outstanding balance of the note. At the date of the contract, the old cellphone has an estimated selling price of P60,000 after reconditioning costs of P4,000 with normal profit of 10%. Abenson Inc. was able to collect the installments due and its corresponding interests on December 31 and March 31. However, the buyer defaulted on the installment due on June 30 but was able to pay the interest for that period. It resulted to the repossession of the TV set. The fair value of the TV set on the date of repossession is P15,000. On November 1, 2021, the repossessed TV set was resold at a selling price of P19,000 after being reconditioned at a cost of P1,875. Question 18: What is Abenson's net income for the year ended December 31, 2020? (A) P25,000 (B) P24,000 (C) P28,500 (D) P25,500 Question 19: What is Abenson's net income for the year ended December 31, 2021? (A) P8,500 (B) P8,125 (C) P2,500 (D) P4,000 Question No. 20:

Microhard Inc. sold computer equipment on installment basis on October 1, 2020. The cost to the company was P60,000 but the installment sales price was set at P85,000. Terms of payment included the acceptance of a used computer equipment with a trade-in value of P30,000. Cash of P5,000 was paid in addition to the trade-in equipment with the balance to be paid in ten (10) monthly installments due at the end of each month

commencing at the month of sale. The estimated selling price of the used computer equipment after reconditioning costs of P1,250 was P25,000. A 15% gross profit margin was usual from sale of used equipment. What is the gross profit to be realized from the 2020 collections? (A) P34,000 Question No. 21:

(B) P10,000

(C) P8,000

(D) P4,000...