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INSTALLMENT SALES MM Company began operations on January 1, 2007 and appropriately uses the installment method of accounting. The following data are available for 2007 and 2008 2007 2008Installment sales ---------------------------------- P1,200,000 P1,500, Cash collections from 2007 sales ---------...

Description

INSTALLMENT SALES 1.

MM Company began operations on January 1, 2007 and appropriately uses the installment method of accounting. The following data are available for 2007 and 2008 2007 Installment sales ---------------------------------Cash collections from 2007 sales -------------------------------2008 sales -------------------------------Gross profit on sales -----------------------------

P1,200,000

2008 P1,500,000

400,000

500,000 600,000 40%

30%

The realized gross profit for 2008 is a. b.

P240,000 390,000

c. d.

P440,000 600,000 (AICPA)

2.

TT Company, which began business on January 1, 2008, appropriately uses the installment sales method of accounting. The following data are available for 2008:

Installment accounts receivable, 12/31/08 --------------------Deferred gross profit, 12/31/08 (before recognition of realized gross profit) ---------------------------------Gross Profit on sales ----------------------------------------------

P200,000 140,000 40%

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

a. b. c. d. 3.

Cash collections P100,000 100,000 150,000 150,000

Realized gross profit P80,000 60,000 80,000 60,000

(AICPA) Dudong Electronics makes all of its sales on credit and accounts for them using the installment sales method. For simplicity assume that all sales occur on the first day of the year and that all cash collections are made on the last day of the year. Dudong Electronics charges 18% interest on the unpaid installment balance. Data for 2007 and 2008 are as follows: 2007 Sales ---------------------------------------P100,000 Cost of goods sold ------------------------ 60,000 Cash collections (principal and interest)

2008 P120,000 80,000

2007 sales ---------------------------------2008 sales

40,000

50,000 90,000 (Adapted)

The interest income recognized in 2008 amounted to: a. b. 4.

c. d.

P35,640 49,700

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

5.

P14,040 21,600

P14,384 22,800

c. d.

P37,184 39,600

The books of Harry Co, show the following balances on December 31, 2008: Accounts Receivable --------------------------------------- P313,750 Deferred Gross Profit (before adjustment) -------------38,000 Analysis of the accounts receivable reveal the following: Regular accounts -------------------------------------------- P207,500 2007 installment accounts --------------------------------- 16,250 2007 installment accounts --------------------------------- 90,000 Sales on an installment basis in 2007 were made at 30% above cost; in 2008, at 33 1/3 above cost. Expenses paid was P1,500 relating to installment sales. How much is the net income on installment sales? a. P11,000 c. P16,000 b. 11,500 d. 10,250 (PhilCPA)

6.

DJ Co. accounts for installment sales on the installment basis. On January 1,2006, ledger accounts included the following balances: Installment Receivable Installment Receivable Deferred Gross Profit Deferred Gross Profit

-

2006 ---------------------------2007 ---------------------------2006 ---------------------------2007 ----------------------------

P

38,500 155,000 11,550 62,000

On December 31,2008, account balances before adjustments for realized gross profit on installment sales were: Installment Receivable Installment Receivable Installment Receivable Deferred Gross Profit Deferred Gross Profit

-

2006 ---------------------------2007 ---------------------------2008 ---------------------------2006 ---------------------------2007 ----------------------------

P

none 42,000 100,500 11,550 62,000

Deferred Gross Profit

- 2008 ----------------------------

75,810

Installment sales on 2008 were made at 42% above cost of merchandise. The total realized gross profit on installment sales in 2008: a. b. 7.

P132,510 98,910

c. d.

P97,510 102,834

(PhilCPA) Dipolog Company sells appliances on the installment basis. Below are information for the past three years: 2008 2007 2006 Installment sales -----------------P750,000 P600,000 P400,000 Cost of sales ----------------------450,000 375,000 260,000 Collections on: 2008 installment sales --275,000 2007 installment sales --180,000 240,000 2006 installment sales --125,000 120,000 150,000 Repossessions on defaulted accounts included one made on a 2008 sale for which the unpaid balance amounted to P5,000. The depreciated values of the appliance repossessed was P2,500. The realized gross profit in 2008 on collections of 2008 installment sales was: a. P108,000 c. P221,250 b. 110,000 d. 221,600 (PhilCPA)

8.

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

P 0 208,000

c. d.

P508,200 309,640 (AICPA)

9.

On October 1, 2007, Rodel Corporation, a real estate developer, sold land to Gerry Company for P5,000,000. Gerry paid cash of P600,000 and signed a ten-year P4,400,000 note bearing interest 12%. The carrying amount of the land was P4,000,000 on the date of sale. The note was payable in forty quarterly principal installments of P110,000 beginning January 2,2008. Rodel appropriately accounts for the sale under the cost recovery method. On January 2, 2008, Gerry paid the first principal installment P110,000 and interest of P132,000. For the year ended December 31,2008, what total amount of income should Rodel recognize from the land sale and the financing?

a. b. 10.

P 0 208,000

c. d.

P508,200 309,640

(AICPA) Asser Computer Co. began operation at the beginning of 2008. During the year, it had cash sales of P6,875,000 and sales on installment basis of P16,500,000. Asser adds a markup on cost of 25% on cash sales and 50% on installment sales. Installments receivable at the end of 2008 is P6,600,000. Total gross profit for 2008 is: a. b.

P1,375,000 3,300,000

c. d.

P4,675,000 3,575,000 (Adapted)

11.

Conrado Motors sells locally manufactured jeepneys on the installment basis. The information presented below relates to operations during the past three years. 2008 2007 2006 Cost of ins. sales ------------ P8,765,125 Dec. 31 balance: Ins. R ble, 2008 ---9,728,125 Ins. R ble, 2007 ---3,025,000 Ins. R ble, 2006 ---Gross profit rate -----------32%

P7,700,000

P4,950,000

8,387,500 1,512,500 30%

4,812,500 28%

Conrado Motors uses the installment method of accounting, what would the company report as total realized gross profit for the year 2008? a. b. 12.

P1,012,000 3,044,250

c. d.

P3,753,750 6,993,250

(Adapted) The various documents and records which were recovered immediately after a fire gutted its premises, EMC Marketing Co. gathered the following information (the company uses the installment method of accounting): 2006

2007

2008

Installments sales ---------------P500,00 P800,000 P (?) Cost of ins. sales ---------------- (?) 600,000 (?) Gross Profit on inst. sales (?) (?) 282,000 Collections on: 2006 sales -------------- 50,000 250,000 100,000 2007 sales -------------- 200,000 500,000 2008 sales -------------400,000 Realized gross profit On installments sales 11,000 (?) 241,000 Based on the information given above, the cost of installment sales for the year 2008 was: a. P900,000 c. P932,000 b. 918,000 d. 940,000 (Adapted)

13.

EMC Motors, a dealer of motor vehicle, sales exclusively on installment basis. One of its customers, Mr. Ambo purchased a motorcycle for P45,375. The cost to EMC was P25,410. After making an initial payment of P6,050, Mr. Ambo defaulted on subsequent payments. EMC lost no time in repossessing the motor vehicle which, by this time, was appraised at a value of P12,650. EMC had to incur additional cost of repairs/remodeling of P1,650 before the motor vehicle was subsequently resold for P27,500 to Mr. Joey who made an initial payment of P6,875. How much profit was realized on the sale to Mr. Joey? a. b.

14.

P3,025 3,300

c. d.

P3,575 3,850

(Adapted) Lane Company, which began operations on January 1, 2008, appropriately uses the installment method of accounting. The following information pertains to Lane’s operations for the year 2008: Installment sales --------------------------------------------- P1,000,000 Regular sales ------------------------------------------------600,000 Cost of installment sales -----------------------------------500,000 Cost of regular sales ----------------------------------------- 300,000 General and administrative expenses ---------------------100,000 Collections on installment basis ---------------------------200,000

15.

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

16.

P378,000 339,750

c. d.

P427,500 389,250

(PhilCPA) Gema, Inc. began operations on January 1, 2008 and appropriately uses the installment method of accounting. The following data are available for 2008: Installment accounts receivable, 12/31/2008 --------------Installment sales for 2008 ------------------------------------Gross profit on sales -------------------------------------------

P600,000 1,050,00 40%

17.

Under the installment method, Gema’s deferred gross profit at December 31, 2008 will be a. P360,000 c. P240,000 b. 270,000 d. 180,000 (AICPA) Vic Corporation, which began business on January 1, 2007, appropriately uses the installment method of accounting. The following data are available:

Balance of deferred gross profit on sales account: 2007 ------------------------------------------2008 -----------------------------------------Gross profit rate on sales ---------------------------

12/31/2007

12/31/2008

P300,000

P120,000 440,000 40%

30%

The installment accounts receivable balance at December 31, 2008 is a. b. 18.

P1,000,000 1,100,000

c. d.

P1,400,000 1,500,000

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

P300,000 225,000

P375,000 285,000

P360,000 252,000

Gross profit --------------------------

P 75,000

P 90,000

P108,000

25%

24%

Rate of gross profit on installment Sales -------------------------

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

30%

2008 P15,000 54,000

P 9,000 72,000

What amount of installment accounts receivable should be presented in Cente’s December 31, 2008 balance sheet? a. b.

P270,000 277,500

c. d.

P279,000 300,000

19.

(AICPA) The following selected accounts appeared in the trial balance of Union Sales as of December 31, 2008: Debit Credit Installment Receivable – 2007 sales --------P 15,000 P Installment Receivable – 2008 sales --------200,000 Inventory, December 31, 2007 --------------70,000 Purchases ---------------------------------------555,000 Repossession -----------------------------------3,000 Installment Sales -------------------------------425,000 Sales (Regular) ---------------------------------385,000 Unrealized Gross Profit 2007 ----------------54,000 Additional information: Installment Receivable – 2007 sales, as of December 31, 2007 120,000 Inventory of new and repossessed merchandise as of December 31, 2008 95,000 Gross Profit percentage of regular sales during the year 30% on sales Repossession was made during the yea. It was a 2007 sale and the corresponding uncollected account at the time of repossession was P7,750. (1) The total realized gross profit on installment sales in 2008, and (2) gain (loss) on repossession in 2008: a. b. c. d.

(1) P129,262.50; (1) 85,500.00; (1) 129,262.50; (1) 85,500.00;

(2) P(1,262.50) (2) (1,262.50) (2) 1,262.50 (2) 1,262.50 (PhilCPA)

20.

Gloria Corporation started operations on January 1, 2007 selling home appliances and furniture sets both for cash and on installment basis. Data on the installment sales operation of the company gathered for the years ending December 31, 2007 and 2008 were as follows:

Installment sales -------------------------------Cost of installment sales ----------------------Cash collected on installment sales 2007 installment contracts -----------2008 installment contracts -----------Additional information:

2007 P400,000 240,000

2008 P500,000 350,000

210,000 -

150,000 300,000

On January 5, 2009 an installment sale in 2007 was defaulted and the merchandise with an appraised value of P5,000 was repossessed. Related installment receivable balance on January 5, 2009 was P8,000.

(1) The balance of Deferred Gross Profit on December 31, 2008, and (2) the gain or (loss) on repossession in 2009. a. b.

21.

(1) P130,000; (2) P200 (1) 76,000; (2 ) 200

c. d.

(1) P 76,000; (2) P1,800 (1) 130,000; (2) (200) (PhilCPA)

Jane Enterprises uses the installment method of accounting and it has the following data at the year-end: Gross margin cost ------------------------------------------------------ 66-2/3% Unrealized gross profit -----------------------------------------------P192,000 Cash collections including down payments -----------------------360,000 What was the total amount of sales on initial basis? a. b.

22.

P480,000 552,000

c. d.

P648,000 840,000

(PhilCPA) The Cindy, Inc. began operating at the beginning of the calendar year 2008 and, using the installment method of accounting, presented the following data for the first year: Installment sales ---------------------------------------------------- P400,000 Gross margin based on cost --------------------------------------- 66-2/3% Inventory, Dec. 31, 2008 -----------------------------------------80,000 General and administrative expenses ---------------------------- 40,000 Accounts receivable, Dec. 31, 2008 ----------------------------- 320,000 The balance of the deferred gross profit account, end of 2008 should be: a. b.

P192,000 128,000

c. d.

P96,000 80,000 (PhilCPA)

23.

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

24.

monthly installments. An interest of 12% per annum on the unpaid amount is to be paid with the monthly installments. Area of subdivision: 200 subdivision lots, various sizes -------------------------Road lots -------------------------------------------------------Parks, reserved for public use --------------------------------

52,250 Sq. M. 23,750 Sq. M. 4,000 Sq. M.

Total ------------------------------------------------------------- 80,000 Sq. M. Cost of subdivision Cost of raw land, 80,000 sq. m. ----------------------------Surveying and laying monuments -------------------------Filling and leveling sub-grade land -----------------------Curbs, gutters, and drainage -------------------------------Road bracing, filling, and paving -------------------------Electric light posts and lines -------------------------------Total ---------------------------------------------------------

P2,375,000 45,000 130,000 310,000 2,175,000 190,000

P5,225,000

The total selling price of the 200 subdivsion lots, per the price lists, is P9,500,000. Total installment sales in 2008 --------------------------- P3,450,000 Installment receivable, Dec. 31, 2008 ------------------- 1,594,600 Interest income in 2008 ------------------------------------ 520,300 Operating expenses in 2008 ------------------------------- 682,130 Compute the (1) unrealized gross profit on December 31, 2008, and (2) the net income for 2008. a. b.

25.

(1) P717,570; (2) P1,355,230 (1) 717,570; (2) 673,100

c. d.

(1) P 877,030; (2) P673,100 (1) 1,552,500; (2) 1,355,230 (PhilCPA)

The Jaja Sales Co. which began the appliances business on January 1, 2006 reports gross profit on the installment basis. The following information relative to the installment sales are available: 2006 2007

2008

Installment sales ---------------------Cost of installment sales -------------

P360,000 270,000

P375,000 271,875

P450,000 324,000

Gross profit ----------------------------

P90,000

103,125

126,000

Collections: 2006 installment contracts -- P67,500 2007 installment contracts -2008 installment contracts -Defaults: Unpaid balance of 2006 installment contracts -Value assigned to repossessed merchandise ----------Unpaid balance of 2007 installment contracts -Value assigned to repossessed merchandise -----------

P112,500 71,250

P108,750 120,000 93,750

P 18,750

P 22,500

9, 750

9,000 24,000 13,500

(1)The realized gross profit on installment sales duri...