Advanced Accounting 1

Alfred D. Abao, CPA

Gordon College
Installment Sales

Frederick
Exercises

Problem 1
On October 31, 2007, R Company sold for P1,406,250 property that had cost of P1,125,000. R Company
received a P375,000 down, the balance is payable in monthly installments, with the first payment due at
the end of November. R Company decides to report the profit on the sale on the installment basis. Assume
the monthly payments are sums consisting of P11,250 with a portion of each payment representing
interest of 12% on the outstanding balance of the principal and the remainder representing a reduction in
the aforementioned balance.
How much is the realized gross profit for 2007?
Problem 2
B Company started its operation in January 1, 2007. During the year, it had cash sales of P6,875,000 and
installment sales of P16,500,000. B Company imposes a mark up on cost of 25% for cash sales and 50%
for installment sales. During 2007, installment receivable balance amounted to P6,600,000. How much is
the realized gross profit for 2007?
Problem 3
Presented below is the unadjusted trial balance of Pinky Corporation at December 31, 2010:
Debit
Credit
Cash
P 5,000
Installment accounts receivable, 2009
40,000
Installment accounts receivable, 2010
140,000
Inventory, 12/31/2010
200,000
Other assets
497,000
Accounts payable trade
50,000
Unrealized gross profit 2008
10,000
Unrealized gross profit 2009
86,000
Unrealized gross profit 2010
100,000
Capital stock
600,000
Retained earnings
80,000
Gain on repossession
6,000
Operating expenses
50,000
Total
P932,000
P932,000
Cost of goods sold had been uniform over the years at 60% of sales.
Pinky adopts perpetual inventory procedures. On installment sales, the corporation charges installment
accounts receivable and credits inventory gross profit accounts.
Repossessions of merchandise have been made during 2010 due to some customers failure to pay
maturing installments. Analyses of these transactions were summarized as follows:
Inventory
Unrealized gross profit, 2008
Unrealized gross profit, 2009
Installment accounts receivable 2008
Installment accounts receivable 2009
Gain on repossession

7,500

800
2,400
2,700

2,000
6,000

The repossessed merchandise was unsold at December 31, 2010. It was ascertained that they were
booked upon repossession at original costs. A fair valuation of these items would be a sale price of the
repossessed merchandise at P10,000 after incurring costs of reconditioning of P5,000 and cost to dispose
them in the market value at P500.
Required:
A. Realized gross profit on 2010 sale
B. Gain/loss on repossession