Group 3: Quizzer on Installment Sales

Members:
Alvarez, Kate Mahalia M.
Antaran, Elisha Coleen A.
Halili, Patricia Anne M.
Ignacio, Francesca Maranela C.

I.​ ​Easy

A. Theories

1.​ ​(50) FTEK (France, Trisha, Elisha, Kate) Meat Market sells quarters and sides of
beef on the installment basis. Losses on receivables are very difficult to predict, and
meat products cannot be repossessed. The revenue recognition method to be used by
FTEK would be:
a.​ ​Point of Sale
b.​ ​Installment Sales
c.​ ​Cost Recovery
d.​ ​Answer B or C is correct

2.​ ​(59) Deferred Gross Profit on installment sales is generally treated as a(n)
a.​ ​deduction from installment accounts receivable
b.​ ​deduction from installment sales
c.​ ​unearned revenue and classified as a current liability
d.​ ​deduction from gross profit on sales
3.​ ​At the time of repossession, repossessed merchandise is debited at its:
a.​ ​Original cost

b.​ ​Unrecovered cost

c.​ ​Fair value after reconditioning cost

d.​ ​Fair value before reconditioning cost

ANSWER: B (8;392 G)

4.​ ​Under the instalment method, realized gross profit is computed at the end of each
year by:
a.​ ​Multiplying the total collections by the gross profit rate based on cost
b.​ ​Multiplying the total collections by the gross profit rate based on sales
c.​ ​Multiplying the selling price by the gross profit rate
d.​ ​Multiplying the cost of sales by the gross profit rate

ANSWER: B (7;392 D)

5.​ ​Revenue from a contract with a customer

a.​ ​Is recognized when the customer receive the rights to receive consideration

b.​ ​Is recognized even if the contract is still wholly unperformed

c.​ ​Can be recognized even when a contract is still pending

d.​ ​Cannot be recognized until a contract exists

ANSWER: D (92;230 D)

6.
 7.

8.

9.

B. Solving
 10.​ ​MM Company began operations on January 1,2015 and appropriately uses the
instalment method of accounting. The following data are available for 2015 and 2016

2015 2016

Instalment sales P1,200,000 P1,500,000

Cash Collections from:

2015 sales 400,000 500,000
2016 sales 600,000

Gross profit on sales 30% 40%

The realized gross profit for 2016 is:

a.​ ​P240,000
b.​ ​390,000
c.​ ​440,000
d.​ ​600,000

A: B (1;197 D)
S: Realized gross profit on instalment sales in 2016: Collections x Gross profit rate %
2015 sales: P500,000 x 30%
……………………………………………………P150,000
2016 sales: P600,000 x 40% ……………………………………………………
240,000

P390,000
 11.​ ​BMW Corporations sels car on a three year instalment sales contract. On December 31,
2018, the last day of BMW’s first year of operations, the results of operations before
adjustment are summarized below:

Sales
P1,000,000
Cost of Instalment Sales
700,000
Operating expenses
80,000

The total collections during the year including interest and financing charges of P100,000 is
P500,000. What is the net income of BMW Corporation for the year ended December
31,2018?

a.​ ​P220,000

b.​ ​140,000

c.​ ​150,000

d. 120,000

A: B (4;394 G)
S: Sales
P1,000,000
Cost of installment sales
700,000
Deferred gross profit P 300,000
Less: Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000) P 600,000
Gross profit rate (300,000 1,000,000) ​ X 30% 180,000
Realized gross profit P 120,000
Operating expenses 80,000
Operating income P 40,000
Interest and financing charges 100,000
Net income P 140,000

12.​ ​Roco Corp., which began business on January 1, 2018, appropriately uses the
installment sales method of accounting for income tax reporting purposes. The following
data are available for 2018:
Installment accounts receivable, 12/31/2018
P200,000
Installment sales for 2018
350,000
Gross profit on sales
40%

Under the installment method, what would be Roco’s deferred gross profit at December
31, 2018?

a. P20,000
b. 90,000
c. 80,000
d. 60,000

A: C (2;4 link)
S: Installment account receivable, 12/31/13 P200,000
Gross profit rate 40%
Deferred gross profit, December 31,2013 P 80,000
13.​ ​Gray Co., which began operations on January 1, 2018, appropriately uses the
installment method of accounting. The following information pertains to Gray operations
for the 2018:

P5
00,
00
Installment sales 0

Regular sales 300,000

Cost of installment sales 250,000

Cost of regular sales 150,000

General and administrative expenses 50,000

Collections on installment sales 100,000

In its December 31, 2018 statement of financial position, what amount should
Gray report as deferred gross profit?

a.​ ​P250,000

b.​ ​200,000

c.​ ​160,000

d.​ ​75,000

A: B
S:

Installment sales P500,000

Collections 100,000

Installment accounts receivable, 12/31/13 400,000

Gross profit rate (P250,000/P500,000) 50%

Deferred gross profit, 12/31/13 P200,000

Or

Deferred gross profit(P500,000 – P250,000) 250,000

Realized gross profit, 12/31/13 (P100,000x50%) 50,000

Deferred gross profit, 12/31/13 P200,000

14.​ ​Filstate Co. is a real estate developer that began operations on January 2, 2018.
Filstate appropriately uses the installment method of revenue recognition. Filstate sales
are made on the basis of a 10% downpayment, with the balance payable over 30 years.
Filstate gross profit percentage is 40%. Relevant information for Filstate first year of
operations is as follows:
Sales P16,000,000

Cash collections 2,020,000

The realized gross profit and deferred gross profit at December 31, 2018 are:
a.​ ​P808,000 and P5,592,000
b.​ ​5,040,000 and 808,000
c.​ ​5,600,000 and 808,000
d.​ ​808,000 and 6,400,000

A: A
S:

Realized gross profit (P2,020,000 x

40%) P808,000

Deferred gross profit, 12/31/13:

 Installment accounts receivable, 12/31/13

(P16,000,000 - P2,020,000) P13,980,000

40
Gross profit rate %

Deferred gross profit, 12/31/13 P5,592,000

15.​ ​Long Co., which began operations on January 1, 2018, appropriately uses the
installment method of accounting. The following information pertains to Long’s
operations for the year 2018:

P1,0
00,00
Installment sales 0

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 200,0000

What is the total comprehensive income on December 31, 2018?

a.​ ​P400,000

b.​ ​200,000

c.​ ​300,000

d.​ ​100,000

A: ​C
S:

Regular sales P600,00

 cost of regular sales 300,000

Gross profit on regular sales P300,000

Realized gross profit on installment sales:

Collections P200,000

Gross profit rate 50

(P500,000/P1,000,000) % 100,000

Total realized gross profit 400,000

General and administrative expense 100,000

Total comprehensive income P300,000

16.​ ​Kiko Co. began operations on January 1, 2018 and appropriately uses the
installment method of accounting. The following information pertains to Kiko’s
operations for 2018:

P8
00,
00
Installment sales 0

Cost of installment sales 480,000

General and administrative expenses 80,000

Collections on installment sales 300,000

The balance in the deferred gross profit account at December 31, 2018 should be:

a.​ ​P120,000

b.​ ​150,000
c.​ ​200,000

d.​ ​320,000

A: C
S:

Installment sales P800,000

Cost of installment sales 480,000

Deferred gross profit 320,000

Realized gross profit (P300,000 x 40%*) 120,000

Deferred gross profit, 12/31/13 P200,000

*Gross Profit Rate (P320,000/P800,000)

= 40%

17.​ ​Tayag Corp., which began operations in 2018, accounts for revenues using the
installment method. Tayag’s sales and collections for the year were P60,000 and
P35,000, respectively. Uncollectible accounts receivable of P5,000 were written off
during 2018. Tayag’s gross profit rate is 30%. On December 31, 2018, what amount
should Tayag report as deferred revenue?

a.​ ​P10,500

b.​ ​9,000

c.​ ​7,500

d.​ ​6,000

A: D
S:
 Installment sales P60,000

Less: Collections P35,000

5,00
Accounts written off 0 40,000

Installment accounts receivable,

12/31/13 20,000

3
0
Gross profit rate %

Deferred gross profit, 12/31/13 P6,000

II.​ ​Average
 Vic Corporation, which began business on January 1,2015, appropriately uses the
instalment sales method of accounting. The following data are available:

12/31/2015
12/31/2016
Balance of deferred gross profit on sales account:
2015……………………………………………………
P300,000 P120,000
2016……………………………………………………
440,000
Gross profit on sales
30% 40%
The instalment accounts receivable balance at December 31, 2016 is
a. P1,000,000
b. 1,100,000
c. 1,400,000
d. 1,500,000

A: D (17;203 D)
S:
Instalment accounts receivable, December 31, 2016:
Deferred gross profit, December 31, 2016/Gross profit rate
2015 sales: P120,000 / 30%............................................................. P
400,000
2016 sales: P440,000 / 40%............................................................ ​ 1,100,000
Instalment accounts receivable, December 31, 2016………………………………
P1,500,000
 Gianne Co., sold a computer on instalment basis on October 1, 2015. The unit cost to
the company was P86,400, but the instalment selling price was set at P122,400. Terms
of payment included the acceptance of a used computer with a trade-in allowance of
P43,200. Cash of P7,200 was paid in addition to the traded-in computer with the
balance to be paid in ten monthly instalments due at the end of each month
commencing the month of sale.

It would require P1,800 to recondition the used computer so that it could resold for
P36,000. A 15% gross profit was usual from the sale of used computer. The realized
gross profit from the 2016 collections amounted to:

a. P5,760
b. 14,100
c. 11,520
d. 48,960

A: C (27;208 D)
S:
Trade-in allowance…………………………………………………………………….. P
43,200
Less: market value of trade-in merchandise
Estimated resale price after reconditioning………. P36,000
Less: Reconditioning costs………………………………... 1,800
Normal profit (15% x P36,000)…………………. 5,400
28,800
Over allowance
P 14,400

Instalment sales............................................................ P 122,000

Less: over allowance………………………………………………….
14,400
Adjusted instalment sales………………………………………….
P 108,000
Less” cost of instalment sales……………………………………
86,400
Gross profit…………………………………………………………………
P 21,600
 Gross profit rate (P21,600 / P108,000)…………………………………………………..
20%

Realized Gross profit:

Down payment………………………………………………………………………….
P 7,200
Trade-in (at market value)…………………………………………………………
28,800
Instalment Collections:
(P108,000 – P28,800 – P7,200) / 10 x 3 months…………
21,600*
Total collections in 2016………………………………………………………………………..
P 57,600
Multiply by: Gross profit ratio………………………………………………………………..
20%

P 11,520

* or (P122,400 – P7,200 – P43,200) / 10 x 3 months

Polo Company appropriately uses the instalment sales method of recognizing revenue.
On December 31, 2013, the accounting records show unadjusted balances of the
following:

Instalment accounts receivable – 2011 P 12,000

Instalment accounts receivable – 2012
40,000
Instalment accounts receivable – 2013 130,000
Deferred gross profit – 2011 10,500
Deferred gross profit – 2012 28,900
Deferred gross profit – 2013 96,000
Gross profit rates:
2011 35%
2012 34%
2013 32%
For the year ended December 31, 2013, compute (1) total realized gross profit and (2)
The total cash collections in 2013:

a. (1) P182,000; and (2) P135,400

b. (1) 76,000; and (2) 233,000
c. (1) 158,000; and (2) 368,400
d. (1) 106,000; and (2) 97,600
A: B (14;8 link)
S:
(1) Total realized gross profit

2011 2012 2013

Deferred gross profit before adjustment P10,500 P28,900 P96,000
Deferred gross profit, end:
2011 sales (P12,000 x 35%) 4,200
2012 sales (P40,000 x 34%) 13,600
2011 sales (P130,000 x 32%) ​ ​ ​ ​ ​ 41,600
Realized gross profit, 12/31/13 P 6,300 P15,300
P54,400
Total (P76,000)

(2) Total collections in 2013

2011 2012 2013

Installment accounts receivable, beg

2011 sales (P10,500/35%) P30,000
2012 sales (P28,900/34%) 85,000
2011 sales (P96,000/32%) P300,000
Installment accounts receivable, end ​ 12,000​ ​40,000​ ​130,000
Collections during 2013 ​P18,000 ​ ​ P45,000 ​ ​ P170,000
Total (P233,000)

A refrigerator was sold to Fernandina Castro for P16,000, which included a 40%
markup on selling price. She made a down payment of 20%, payment of four of the
remaining 16 equal payment and defaulted on further payments. The refrigerator was
repossessed, at which time the fair value was determined to be P6,800. The
repossession resulted to the following (loss) gain:
a. P(1,040)
b. P1,040
c. P4,056
d. P2,960
A: B (29;14 link)
S:
Fair value of repossessed merchandise
P6,800
Unrecovered Cost:
Unpaid balance:
Sales 16,000
Collections:
Downpayment 3,200
Installment 3,200 6,400 9,600
Deferred gross profit (9,600 x 40%) ​ 3,840​ ​ 5,760
Gain on repossession
P1,040
 JGG Company began operations on June 1. 2013. The following information extracted
from its records at year-end:

Cost of Instalment sales

P1,093,750
Cost of regular sales 1,050,000
Mark-up on instalment sale 140% of cost
Mark-up on regular sale 33 1/3
on sales
Balances at December 31, 2013
Instalment accounts receivable
1,575,000
Accounts receivable
735,000
Operating expenses 70% of realized
gross profit

What is the net income for the year ended December 31,2013?

a. P341,250
b. 267,750
c. 90,157
d. 174,000

A: A (22;402 G)
S:
Regular sales
P1,575,000
Cost of regular sales
1,050,000
Gross profit on regular sales 525,000
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%) 2,625,000
Installment accounts receivable-12/31/08 1,575,000
Collections 1,050,000
Gross profit on rate on sales 140/240 612,500
Total realized gross profit
1,137,500
Operating expenses (1,137,500 x 70%) 796,250
Net income

The following information pertains to a sale of real estate by RR Co. to SS Co.

on December 31,2017:
Carrying amount P2,000,000

Sales price:

Cash P300,000

Purchase money
mortgage 2,700,000 3,000,000
The mortgage is payable in nine annual installments of P300,000 beginning December
31,2018 plus interest of 10%. The December 31,2018 installment was paid as
scheduled, together with interest of P270,000. RR uses the cost recovery method to
account for the sale. What amount of income should RR recognize in 2018 from the
real estate sale and its financing?

a.​ ​P570,000

b.​ ​P370,000

c.​ ​P270,000

d.​ ​P0

A: D
S:
Zero, because the total cost of P2,000,000 is not yet fully recovered. The total collections
applying to principal as of December 31, 2018 is only P330,000 (P300,000 + P30,000), so no
income is yet to be recognized.
The Company uses the installment method of accounting to recognize income,
Pertinent data are as follows:
2016 2017 2018

Installment
sales P300,000 P375,000 P360,000

Cost of sales 225,000 285,000 252,000

Balances of Deferred Gross Profit at Year

end

2016 P52,500 P15,000 P-

2017 - 54,000 9,000

2017 - - 72,000
The total balance of the Installment Accounts Receivable on December 31,2018 is:
a.​ ​P270,000

b.​ ​P277,500

c.​ ​P279,500

d.​ ​P300,000

A: B
S:

2017 Sales 2018 Sales

Deferred gross profit – P9, P72,00

Dec.31,2018 000 0

2
4
Divide by GPR (GP/IS) % 30%

Installment accounts receivable, P37 P240,0

Dec.31,2018 ,500 00

Total balance of receivable on

Dec. 31,2018 is
 P277,5
(P37,500 + 240,000) 00

In its first year of operations, Guijo Company’s sales were as follows:

Sales basis Mark-up on cost Sales

Cash 25% P250,000

Charge 33-1/3% 400,000

installment 50% 600,000

The cost of goods sold for the year was P900, 000.

If collections on installment sales during the year amounted to P240,000, how much
was the total gross profit realized at the end of the year?

a.​ ​P50,000

b.​ ​P60,000

c.​ ​P80,000

d.​ ​P230,000

A: D
S:

Gross profit rate based on sales:

Cash (25%/125%) 20%

Charge (33-1/3% /
133-1/3%) 25%

Installment (50% - 33.33

150%) %

Total realized gross profit:

 Cash sales (250,000 x 20%) P50,000

Charge sales (400,000 x 25%) 100,000

Installment Sales (240,000 x 80,

33.33%) 000

Total P230,000
The 680 Appliance Company reports gross profit on the installment basis. The
following data are available:

2016 2017 2018

Installment sales P240,000 P250,000 P300,000

Cost of goods –
installment sales 180,000 181,250 216,000

Gross profit 60,000 68,750 84,000

Collections:

2016
installment
contracts P45,000 P75,000 P72,500

2017
installment
contracts 47,500 80,000

2018
installment
contracts 62,500

Defaults:

Unpaid balance
of 2016

Installment
contracts P12,500 P15,000

Value assigned
to repossessed

Merchandise 6,500 6,000

 Unpaid balance
of 2017

Installment
contracts 16,000

Value assigned
to repossessed

Merchandise 9,000

The loss on repossession for the year 2017 is:

a.​ ​(P2,600)
b.​ ​(P5,250)
c.​ ​P2,600
d.​ ​(P7,850)

The total realized gross profit after loss on repossession for 2018 is:

a.​ ​P49,775

b.​ ​P57,625

c.​ ​P48,975

d.​ ​P56,625

A: A and A
S:
This is computed by deducting the loss on repossession from the total realized gross
profit: ​Year of Sales
Tot
2016 2017 2018 al

P72,5 P80,00 P62,5

Collections 00 0 00

Gross profit rate

2016:P60,000/P240
,000 25%

2017:P68,750/P250
,000 27.5%

2018:P84,000/P300 ___ ____

,000 ___ __ 28%

Realized gross P18,1 P22,00 P17,5 57,62

profit 25 0 00 5

Loss on
repossession

Value of P6
repossessed ,00 P9,0
merchandise 0 00

Unrecovered cost:

Unpaid
balance 15,000 16,000

Less: deferred
gross profit

2016:P15,000
x25% 3,750

2017:P16,000
x27% _____ 4,400

Unrecovered
cost 11,250 11,600

Loss on (7,850
repossession (P5,250) (P2,600) )

Total realized gross profit after loss on P49,7

repossession 75
III.​ ​Difficult

(43)

1. Kefa Trading accounts for sales under the installment method. On January 1,2017 it's
ledger accounts included the following balances:

Installment Receivable, 2015 P38,500

Installment Receivable, 2016 155,000

Deferred Gross Profit, 2015 11,550

Deferred Gross Profit, 2016 62,000

Installment sales in 2017 were made at a 42% gross profit rate. December 31,2017 account
balances before adjustments were as follows:

Installment Receivable, 2015 P-0

Installment Receivable, 2016 42,000

Installment Receivable, 2017 100,500

Deferred Gross Profit, 2015 11,550

Deferred Gross Profit, 2016 62,000

Deferred Gross Profit, 2017 75,810

The total realized gross profit on December 31,2018 is:

a. P90,350 b. P97,510 c. P98,910 d. P97,350
A: a.
S:

2015 sales P11,550

2016 sales 62,000

2017 sales 75,810

Total 149,360

Less: deferred gross profit, end (IAR

end X GPR)

2015 sales -

2016 sales (P42,000 x 40%) P16,810

2017 sales(P100,500 x 42%) 42,210 59,010

Total realized gross profit, 12/31/17 P90,350

2016 GPR: P62,000/P155,000 = 40%

The following selected accounts appeared in the trial balance of Union Sales as of
December 31,2018
Debit Credit

Installment Accounts Receivable,

2017 sales P15,000

Installment Accounts Receivable,

2018 sales 200,000

Inventory, December 31,2017 70,000

Purchases 555,000

Repossessions 3,000

Regular Sales P385,000

Installment sales 425,000

Unrealized Gross Profit, 2017 54,000

Additional information:

Installment Accounts Receivable, 2017 sales,

As of December P120,0
31,2017 00

Inventory of new and

repossessed

Merchandise,
December 31,2018 95,000

Gross profit rate on regular sales during the year 30%

Repossession was made during the year on a 2017 sale and the corresponding
uncollected amount at the time of repossession was P7,750.

The total realized gross profit on December 31,2018 is:

a. P85,500
 b.​ ​P129,262.5

c.​ ​ P43,762.5
d.​ ​P119,622.5

the (loss) on repossession is December 31,2018:

a.​ ​P(1,626.5)
b.​ ​P(1,262.5)
c.​ ​P1,262.5
d.​ ​P1,626.5

A: B and A
S:
Total realized gross profit is computed below:

Year of sales

2012 2013

Sale
s Sales

Installment receivable, 1/1/13 P120,000 P425,000

Installment receivable, 12/31/13 (15,000) (200,000)

Defaulted balance (7,750) -

Collections 97,250 225,000

4 3
5 8
Gross profit rates % %

Realized gross profit, 12/31/13 P43,762.​50 P85,500

Total (P129,562.50)

Gross profit rate:

 2012 sales (P54,000/P120,000) 45%

2013 sales P425,000

Installment sales

Cost of installment sale:

Inventory, 1/1 70,000

Purchases 555,000

Inventory, 12/31 (95,000)

Repossession 3,000

Total 533,000

Cost of regular sale (70% x

P385,000) 269,500 263,500

Gross profit 161,500

The books of Paiyakan Company show the following account balances on December
31,2013:

Accounts receivable P313,750

Deferred gross profit (before adjustment) 38,000

Analysis of the accounts receivable reveals the following:

Regular accounts P207,500

2012 installment accounts receivable 16,250

2013 installment accounts receivable 90,000

Sales on installment basis in 2012 were made at 30% above cost, and in 2013 at
33-1/3% above cost. Expenses paid relating to installment sales were P1,500.

How much is the deferred gross profit applicable to uncollected installment accounts?
a.​ ​P3,750
b.​ ​P22,500
c.​ ​P26,520
d.​ ​P26,250

How much is the total comprehensive income on installment sales?

a.​ ​P10,000

b.​ ​P10,250

c.​ ​P11,000

d.​ ​P11,500

A: D and B
S:

Deferred gross profit, before adjustment P38,000

Less: deferred gross profit applicable to

Uncollected installment accounts:

2012: P16,250 x 30%/130% P3,750

2013:P90,000 x 25% 22,500 26,250

Realized gross profit P11,750

Less: Expenses 1,500

Net income on installment sales P10,250

GPR(P161,500/P425,000) 38%

The loss on repossession is computed as

follows:

Value of repossessed merchandise P3,000

Less: unrecovered cost:

Unpaid balance P7,750

Deferred gross profit (7,750 x 45%) 3,487.​50 4,262.​50

Loss on repossession P1,262.​50