INSTALLMENT
SALES G.P.
COSTA
Problem 1
Gapan
Corporation sells merchandise on the installment basis, and the uncertainties
of cash collection make the use of the installment sales method of accounting
acceptable. The following data relate to two years of operations.
|
|
2009
|
2010
|
|
Installment
sales ............................
|
P480,000
|
P560,000
|
|
Cost of
installment sales ....................
|
300,000
|
364,000
|
|
Gross
profit .................................
|
180,000
|
196,000
|
|
Gross
profit percentage ......................
|
37.5%
|
35%
|
|
Cash
collections:
|
|
|
|
2009
Sales .................................
|
P190,000
|
P210,000
|
|
2010
Sales .................................
|
--
|
235,000
|
Record
the transactions related to installment sales for 2009 and 2010.
IAR 2009 480 IAR 2010 560
IS 480 IS 560
COIS 300 COIS 364
Invty 300 Invty 364
Cash 190 Cash
445
IAR 2009 190 IAR 2009 210
IAR 2010 235
IS 480 IS 560
COIS 300 COIS 364
DGP 2009 180 DGP 2010 196
DGP 2009 71.25 DGP
2009 78.75
RGP 71.25 DGP
2010 82.25
RGP 161
Problem 2
Cavite
Medical Center uses the cost recovery method in accounting for recognizing
revenue. The following information is available:
|
|
2009
|
2010
|
2011
|
|
Sales
...................
|
%
|
P60,000
|
P85,000
|
|
Gross
profit percentage .
|
37%
|
41%
|
40%
|
|
Cash
collections:
|
|
|
|
|
2009
.................
|
P24,000
|
P19,000
|
P 2,000
|
|
2010
.................
|
|
40,000
|
17,000
|
|
2011
.................
|
|
|
53,000
|
Determine
the amount of gross profit to be recognized for 2009, 2010, and 2011.
24,000 X
37% =
19,000 X
37% +
40,000 X 41% =
2,000 X
37% + 17,000 X 41%
+ 53,000 X 40% =
Problem 3
Lucena
Industrial sells machinery on the installment plan. On September 1, 2009,
Lucena entered into an installment sale contract with Western Productions for a
six-year period. Equal annual payments under the installment sale are P187,500
and are due on August 31 of each year beginning in 2010.
Additional
information:
|
(a)
|
The
cost of the machinery sold to Western was P637,500.
|
|
(b)
|
The
implicit interest rate on the installment sale is 10%.
|
Compute
the income or loss before taxes that Lucena should record for the year ended
December 31, 2009, as a result of the above transaction, assuming that
circumstances are such that the collection of the installments due under the
contract
|
(1)
|
is
reasonably assured.
|
|
(2)
|
cannot
be reasonably assured.
|
4.355261 X 187,500 =
816,611
IAR 816,611 IAR 816,611
SALES 816,611 IS 816,611
COS 637,500 COS 637,500
MACHINERY 637,500 MACHINERY 637,500
IS 816,611
COIS 637,500
DGP 179,111
DEC
INT. REC 27,220
INT. INCOME 27,220 SAME
JAN REVERSING
INT. INCOME 27,220
INT. REC 27,220 same
AUG COLLECTION
CASH 187500
IAR 105,839 SAME
INT. INCOME 81,661
816,611 X 10% X 4/12
DGP 23,214
RGP 23,214
105,839 X 179111/816611 = 23,214
Problem
4
On January 2, 2010, Yardley Co. sold a plant
to Ivory, Inc. for P1.5 million. On that
date, the plant's carrying cost was P1 million.
Ivory gave Yardley P300,000 cash and a P1.2 million note, payable in
four annual installments of P300,000 plus 12% interest. Ivory made the first principal and interest
payment of P444,000 on December 31, 2010.
Yardley uses the installment method of revenue recognition. In its 2010 income statement, what amount of
realized gross profit should Yardley report?
Problem 5
San Marcelino Corporation started operations on
January 1, 2011 selling home appliances and furniture sets both for cash and on
installment basis. Data on the installment sales operations of the company
gathered for the years ending December 31, 2011 and 2012 were as follows:
|
|
2011
|
2012
|
|
Installment Sales
|
200,000
|
250,000
|
|
Cost of Installment Sales
|
120,000
|
175,000
|
|
Cash Collected on Installment Sales
2011 Installment Sales
2012 Installment Sales
|
105,000
|
75,000
150,000
|
Required:
i.
Deferred Gross Profit on
December 31, 2011
ii.
Realized Gross Profit on
December 31, 2011
iii.
Realized Gross Profit on
December 31, 2012 and 2011 Installment Sales
iv.
Realized Gross Profit on
December 31, 2012 on 2012 Installment Sales
v.
Deferred Gross Profit on
December 31, 2012(Assuming the problem stated Cost Recovery method is used.)
vi.
Deferred Gross Profit on
December 31, 2011
vii.
Realized Gross Profit on
December 31, 2012 on 2011 Installment Sales (Assuming the problem stated Profit
Realization method is used.)
viii.
Deferred Gross Profit on
December 31, 2011
ix.
Realized Gross Profit on
December 31, 2012.
Problem 6
Aman Group, Inc. sold a fitness
equipment on installment basis on October 1, 2011. The unit cost to the company
was 60,000 but the installment selling price was set to 85,000. Terms of
payment included the acceptance of a used equipment given a trade-in value of
30,000. Cash of 5,000 was paid in addition to the added trade-in equipment with
the balance to be paid in ten (10) monthly installments due at the end of each
month of sale. It would require 1,250 to recondition the used equipment so that
it would be resold for 25,000. A 15% gross profit rate was usual from the sale
of used equipment. What
amount of realized gross profit should Aman report during 2011?
RESALE VALUE 25,000
RECON COST 1250
NORMAL PROFIT 3750 5,000
TRUE WORTH OF
MERCHANDISE TRADED-IN 20,000
SP 85,000
TRADE IN VALUE -30,000
CASH -5000
INSTALlMENT -15,000
BALANCE 50,000/10 = 5000 /MONTH
RGP = COLLECTION X GPR
COLLECTION = 20,000 + 5,000 + 15,000 = 40,000
TRADE-IN ALLOWANCE 30,000
TRUE WORTH OF MTI 20,000
OVER-ALLOWANCE`` 10,000
ADJUSTED SALES = 85,000 – 10000
=75000
GP = 75,000 – 60,000 = 15,000
GPR = 20%
RGP = 40,000 X 20% = 8,000
Problem 7
The Cavite Furniture Company appropriately
used the installment sales method in accounting for the following installment
sale. During 2012, Cavite sold furniture to Bulacan Co. for P3,000 at a gross
profit of P1,200. On June 1, 2012, this installment account receivable had a
balance of 2,200 and it was determined that no other collections would be made.
Cavite, therefore, repossessed the merchandise. When reacquired, the
merchandise was appraised as being worth only for P1,000. In order to improve
its salability, Cavite incurred costs of P100 for reconditioning. Normal profit
on resale is P200. What should be the
loss on repossession attributable to this merchandise?
Problem 8
Matson Company sold some machinery to the
Finney Company on January 1, 2011. The cash selling price would have been
P473,850. Finney entered into an installment sales contract which required
annual payments of P125,000, including interest at 10%, over five years. The
first payment was due on December 31, 2011. What amount of interest income
should be included in Matson’s 2012 income statement (the second year of the
contract)?
a.
P12,500.
b.
P39,624.
c.
P25,000
d.
P34,885.
Problem 9
On January 1, 2010, Colt Co. sold land that
cost P60,000 for P80,000, receiving a note bearing interest at 10%. The note
will be paid in three annual installments of P32,170 starting on December 31, 2010.
Because collection of the note is very uncertain, Colt will use the cost
recovery method. How much revenue from this sale should Colt recognize in 2010?
Problem 10
Malinta Company sells appliances
on the installment basis. Below are the information for the past three years:
|
|
2012
|
2011
|
2010
|
|
Installment Sales
|
750,000
|
600,000
|
400,000
|
|
Cost of Installment Sales
|
450,000
|
375,000
|
260,000
|
|
Collection On
2012 Inst. Sales
2011 Inst. Sales
2010 Inst. Sales
|
275,000
180,000
125,000
|
240,000
120,000
|
150,000
|
Repossessions on defaulted
accounts included one made on a 2012 sale for which the unpaid balance amounted
to 5,000. The FMV after incurring a reconditioning cost of 500 is 5,500.
Required:
a. Realized Gross Profit in 2012
on collections of 2012 installment sales
b. Deferred Gross Profit, end on
December 2012 installment sales
c. Loss on Repossession
Problem 11
Jay & Bee Co., which sells on installment
basis, recognizes, at year-end, gross profit based on collections made. Operations data follow:
January
1 December 31
Installment receivable:
2010 P 120,000 P -0-
2011 1,722,300 337,200
2012 -0- 2,050,450
2010 2011 2012
Sales P1,900,000 P2,160,000 P3,010,000
Cost of sales
1,235,000 1,425,600 1,896,300
In 2012, the
company repossessed merchandise with a resale value of P8,500 from a customer
who defaulted on his payments. The
account was incurred for P27,000 in 2011, and P16,000 had been paid prior to the default. As collections are made, the company debits
cash and credits the related installments receivable; for defaults, the company
debits inventory of repossessed merchandise and also credits the related
installment receivable account. The
amount of the adjustment on inventory of repossessed merchandise would be:
a.
P-0-
b.
P2,500
c.
P3,740
d.
P5,645
Problem
12
Home Appliances, Inc. began operation in May,
2010 by selling exclusively on the installment basis. Using the installment method of income
recognition, the company summarized the following data at the end of the first
eight-month period: installment sales,
P450,000; various expenses, P23,000; accounts receivable, P330,000; and,
inventory, P80,000. If the gross margin
based on cost is 66-2/3%, the net income was:
Problem 13
Marcum Co., which began operations on January
1, 2010, appropriately uses the installment method of accounting. The following
information pertains to Marcum’s operations for the year 2010:
Installment sales P1,500,000
Regular sales 600,000
Cost of installment
sales 750,000
Cost of regular sales 300,000
General and
administrative expenses 100,000
Collections on
installment sales 300,000
The deferred gross
profit account in Marcum’s December 31, 2010 balance sheet should be
a.
P150,000
b.
P480,000
c.
P600,000
d.
P750,000
Problem 14
These data pertain to
installment sales of Mickey’s Store:
-
Down
payment: 20%
-
Installment
sales: P545,000 in Year 1; P785,000 in Year 2; and P968,000 in Year 3.
-
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.
i.
The
realized gross profit in Year 1 is:
a.
P109,357
b.
P 73,474
c.
P 99,190
d.
P114,825
ii.
The
unrealized gross profit for installment sales made during Year 2, as at the end
of Year 2, is:
a.
P 97,689
b.
P131,880
c.
P141,112
d.
P114,063
iii.
The
installment Accounts Receivable account balance, as at the end of the Year 3,
is:
a.
P652,722
b.
P621,640
c.
P602,991
d.
P685,359
iv.
The
total unrealized gross profit, as at the end of Year 3, is
a.
P221,047
b.
P161,166
c.
P198,574
d.
P217,574
Problem 15
Several of Fox, Inc.'s customers are having
cash flow problems. Information
pertaining to these customers for the years ended March 31, 2010 and 2011
follows:
3/31/10 3/31/11
Sales P 10,000 P 15,000
Cost of sales 8,000 9,000
Cash collections
On 2010 sales 7,000 3,000
On 2011 sales -
12,000
If the cost-recovery method is used, what
amount would Fox report as gross profit from sales to these customers for the
year ended March 31, 2011?
a.
P
2,000
b.
P
3,000
c.
P
5,000
d.
P15,000
Problem
16
Ondoy Co., which began operations on January
1, 2011, appropriately uses the installment method of accounting. The following information pertains to Ondoy's
operations for the year 2011:
Installment sales P 1,000,000
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 sales 200,000
i.
The
balance in the deferred gross profit account should be
a.
P
200,000
b.
P
320,000
c.
P
400,000
d.
P500,000
ii. The realized Gross profit on Installments
sales for the year 2011 amounted to
- P400,0000
- P80,000
- P100,000
- P150,000
iii. The realized Gross profit for the year
2011 amounted to
- P400,0000
- P80,000
- P100,000
- P150,000
Problem
17
Quincy Enterprises uses the installment
method of accounting and it has the following data at year-end:
Gross
margin on cost 66-2/3%
Unrealized
gross profit P192,000
Cash
collections including down payments 360,000
What was the total
amount of sales on installment basis?
a.
P480,000
b.
P552,000
c.
P648,000
d.
P840,000
Problem
18
Budoy Co., which began operations on January
2, 2010, appropriately uses the installment sales method of accounting. The following information is available for 2010:
Installment accounts
receivable, December 31, 2010 P 800,000
Deferred gross
profit, December 31, 2010 (before recognition of realized
gross profit for 2010) 560,000
Gross profit on sales
40%
For the year ended December 31, 2010, cash
collections and realized gross profit on sales should be
Cash collections Realized gross profit
a.
P
480,000 P 320,000
b.
P
480,000 P 240,000
c.
P
600,000 P 320,000
d.
P
600,000 P 240,000
Problem 19
On January 1, 2010,
Enteng Co. sold a used machine to Cooper, Inc. for P525,000. On this date, the machine had a depreciated
cost of P367,500. Cooper paid P75,000
cash on January 1, 2010 and signed a P450,000 note bearing interest at 10%. The note was payable in three annual
installments of P150,000 beginning January 1, 2011. Enteng appropriately accounted for the sale
under the installment method. Cooper
made a timely payment of the first installment on January 1, 2011 of P195,000,
which included interest of P45,000 to date of payment. At December 31, 2011, Enteng has deferred
gross profit of
a.
P105,000
b.
P
99,000
c.
P
90,000
d.
P
76,500
Problem
20.
From various documents and records which were
recovered immediately after a fire gutted its premises, LAMBDA Marketing Co. gathered the following information:
2009 2010 2011
Installment sales P500,000 P800,000 P (?)
Cost of installment
sales (?)
600,000 (?)
Gross Profit on ins.
sales P (?) P
(?) P282,000
Collections on:
1999 inst. accounts
50,000 250,000 100,000
2010 inst accounts - 200,000 500,000
2011 inst. accounts - - 400,000
Realized gross profit
fr. ins. sales 11,000
(?) 241,000
i.
Based
on the information given above, the total realized gross profit in 2010 was:
a.
P 50,000
b.
P105,000
c.
P112,500
d.
P200,000
ii.
The cost of installment sales for the year 2011
was:
a.
P900,000
b.
P918,000
c.
P932,000
d.
P940,000
Problem
21
Quad, Inc. started operation at the beginning
of 2010, selling home appliances exclusively on the installment sales basis.
Data for 2010 and 2011 follows:
2010 2011
Installment sales P600,000 P750,000
Cost of installment sales 420,000
450,000
2010 inst. Accounts, end 285,000 22,500
2011 inst. Accounts, end - 300,000
On May 31, 2011 , a 2010 installment account of
P37,500 was defaulted and the appliance was repossessed. After reconditioning
at a cost of P750, the repossessed appliance would be priced to sell for
P30,000.
i.
At the
end of 2011, the total unrealized gross profit was:
a.
P120,000
b.
P126,750
c.
P138,000
d.
P146,250
ii. The default and
repossession on May 31, 2011 resulted in a
a.
P3,000
gain.
b.
P3,750
gain.
c.
P8,250
loss.
d.
P9,000
loss.
Problem
22
On January 1, 2010, Nam Co. sold a used
machine to Lock, Inc. for P420,000. On this date, the machine had a depreciated
cost of P294,000. Lock paid P60,000 cash on January 1, 2010 and signed a
P360,000 note bearing interest at 10%. The note was payable in three annual
installments of P120,000 beginning January 1, 2011. Nam appropriately accounted
for the sale under the installment method. Lock made a timely payment of the
first installment on January 1, 2011 of P156,000, which included interest of
P36,000 to date of payment. At December 31, 2011, Nam has deferred gross profit
of
a.
P84,000
b.
P79,200
c.
P72,000
d.
P61,200
Problem
23
Hart, 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:
2009 2010 2011
Installment sales P300,000 P375,000 P360,000
Cost of installment
sales 225,000 285,000 252,000
Gross Profit P 75,000 P 90,000 P108,000
Rate of gross profit 25%
24% 30%
Balance of deferred
gross profit at year-end:
2009 P52,500 P15,000 P –0-
2010 54,000 12,000
2011 96,000
Total P52,500 P69,000 P108,000
What amount of
installment accounts receivable should be presented in Hart’s December 31, 2011
balance sheet?
a.
P360,000
b.
P370,000
c.
P372,000
d.
P400,000
Problem
24
Abenson Trading Corp. sells household
furniture both on cash and on installment basis. For each installment sales, a
contract is entered into whereby the following terms are stated:
a.
A
down payment of 25% of the installment selling price is required and the
balance is payable in 15 equal monthly installments.
b.
Interest
of 1% per month is charged on the unpaid cash sales price equivalent at each
installment.
c.
The
price on installment sales is equal to 110% of the cash sales price.
For accounting purposes, installment
sales are recorded at contract price. Any unpaid balances on defaulted
contracts are charged to uncollectible account expense. Sales of defaulted
merchandise are credited to uncollectible account expense. Interest are recorded in the period earned.
For its first year of operation ending December 31, 2010 , the books of the company showed the
following:
Cash sales P378,000
Installment sales 794,970
Merchandise
inventory, Jan. 1 174,180
Purchases 627,891
Merchandise
inventory, Dec. 31 108,630
Cash collections on
installment contracts:
Down Payment 198,750
Installment payments, including interest
of
P27,758.52 (average of six monthly
installments
on all contracts, except
on
defaulted contracts) 238,023
A contract
amounting to P3,300 was defaulted after the payment of 3 installments.
i.
The
gross profit rate based on total sales at cash sales price equivalent is:
a.
33.75%
b.
36.34%
c.
37.00%
d.
40.88%
ii.
The
total interest earned for the first four months on the defaulted contract is:
a.
P60.94
b.
P69.30
c.
P72.07
d.
P80.85
iii.
The
realized gross profit for the year 2010 is
a.
P151,335.35
b.
P161,789.16
c.
P249,674.52
d.
P291,355.95
-ooo0ooo-
