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# PROBLEM 1

Confidence Corporation sells goods on the installment basis. For the year just ended, the following were
reported: Cost of installment sales, P8,400,000; Loss on repossession, P202,500; Wholesale value of
repossessed merchandise, P1,687,500; Repossessed account, P2,700,000; Deferred gross profit after

## How much was the collections for the year?

A. P5,850,000
B. P6,600,000
C. P3,900,000
D. P3,150,000

PROBLEM 2

The ABC Company recognizes profit on credit sales on instalment basis. At the end of 2017, before the
accounts are adjusted, the ledge shows the following:

## Installment Accounts receivable 2015 337,500

Installment Accounts receivable 2016 525,000
Deferred gross profit 2015 185,000
Deferred gross profit 2016 272,500
Regular Sales 1,500,000
Cost of Regular sales 960,000

Each year the gross profit on instalment sales was 8% lower than the regular sales. In 2017, the gross
profit on instalment sales was 4% higher than 2016.

## How much is the total realized gross profit in 2017?

a. 229,500
b. 769,500
c. 181,000
d. 721,000

PROBLEM 3

Dancing Moon Realty Corporation sold a plot of real estate for P2,000,000. The property costing
P625,000 was subsequently improved for P890,000. The term of the sale was 20% downpayment,
balance payable in 12 monthly instalments plus 36% interest per annum on the unpaid balance payable
at the start of each month. The present value of annuity of P1 on the contract is 9.954004. Compute the
following after the second instalment.

a. P48,000
b. P92,617.82
c. P50,000
d. P84,628

## The realized gross profit is

a. P157,341.82
b. P55,498.75
c. P152,498.76
d. P310,041.42

PROBLEM 4

On November 1, 2017, Speed Motor which maintains a perpetual inventory records sold a new
automobile to Rapids for P6,800,000. The cost of the car to the seller was P5,205,000.

The buyer paid 30% down and received P640,000 allowance on an old car traded, the balance being
payable in equal monthly instalment payments commencing the month of sale.

The monthly amortization was P240,000 inclusive of 12% interest on the unpaid amount of the
obligation.

The car traded-in has a wholesome value of P960,000 after expending cost of P180,000.

After paying three instalments, the buyer defaulted and the car was subsequently repossessed. When
reacquired, the car was appraised to have a fair value of P2,400,000.

How much is the realized gross profit on instalment sales during 2017?

a. 820,596
b. 855,596
c. 885,000
d. 804,897

PROBLEM 5

QR Appliances sells home theatre set both on instalment and cash basis. Mr. X purchased a set from QR
Appliances on March 30, 2017 for P367,500 which has a cost of P289,800.

A used set is accepted as down payment, P89,600 being allowed on the trade in. The used set can be
resold for P112,140 after reconditioning cost of P5,362. The company expects to make a 20% gross
profit on the sale of used set.

The balance of the sale is to be paid on a 10-month instalment basis starting May 1, 2016. Mr. X
defaulted payment starting November 1, 2017 and the set was immediately repossessed.

The repossessed merchandise was appraised at a value of P65,625 at the time of repossession. QR has
to incur additional cost of repairs amounting to P6,475 before the car was subsequently resold on
December 1, 2016 for P90,125 cash to Mr. Y.

## What is the net income to be recognized for 2017?

a. 69,293
b. 44,490

c. 51,415

d. 68,243

PROBLEM 6

The following selected accounts were taken from the trial balance of Survival Company as of December
31, 2017:

## Accounts Receivable P750,000

Installment Receivable – 2015 150,000
Installment Receivable – 2016 450,000
Installment Receivable – 2017 2,700,000
Merchandise Inventory 525,000
Purchases 3,900,000
Freight-in 30,000
Repossessed Merchandise 150,000
Repossession Loss 240,000
Cash Sales 900,000
Charge Sales 1,800,000
Installment Sales 4,460,000
Deferred Gross Profit – 2015 222,000
Deferred Gross Profit – 2016 393,600
Operating Expenses 150,000
Shipment on Installment Sales 2,787,500

 Gross Profit rates for 2015 and 2016 installment sales were 30% and 32%, respectively.
 The entry for repossessed goods was:
Repossessed Merchandise 150,000
Repossession Loss 240,000
Installment Receivable – 2015 180,000
Installment Receivable – 2016 210,000
 Merchandise on hand at the end of 2017 (new & repossessed) was P282,000

A. P965,400
B. P2,129,900
C. P2,011,100
D. P2,251,100

A. P1,201,500
B. P1,080,300
C. P2,366,000
D. P1,628,100

## 3. Net income in 2017

A. P1,979,900
B. P1,739,900
C. P1,982,300
D. P1,861,100

PROBLEM 7

Achievement Company which began operations on January 1, 2017 appropriately uses the instalment
method of accounting. The following data pertain to Achievement’s operations for year 2017:

## Installment sales (before over/under-allowance) P3,150,000

Operating expenses 367,500
Regular Sales 1,312,500
Total collections for the year (excluding interest of P84,000) 2,088,000
Cost of regular sales 752,500
Cost of instalment sales 2,205,000
Accounts receivable – 12/31/2017 512,500
Installment receivable written-off (no provision was made) 154,000
Estimated resale value of repossessed merchandise 290,000
Profit usual on the sale of repossessed merchandise 15%
Repossessed accounts 350,000
Actual value of trade-in Merchandise 280,000
Reconditioning cost of the repossessed merchandise 57,500

How much is the deferred gross profit at December 31, 2017? What is the net income for the year
ended December 31, 2017?

A. P353,500; P455,000
B. P353,500; P640,500
C. P287,000; P441,000
D. P287,000; P525,000

PROBLEM 8

The following account balances appear on the books of Fulfilment Company as of December 31, 2017:

Cash P 150,000
Receivables 800,000
Merchandise Inventory 75,000
Accounts Payable 30,000
Deferred Gross Profit – 2015 261,250
Sales 1,250,000
Purchases 640,000
Expenses 425,000

 The Receivables account is a controlling account for three subsidiary ledgers which show the
following totals:
2016 installment contracts 150,000
2017 installment contracts 600,000
Charge accounts (terms, 30 days, net) 50,000
 The Gross profit on sales on installment contract for 2016 was 55%, on installment contracts for
2017, 50%.
 Collections on installment contracts for 2016 total P300,000 for the year just closed; on installment
contracts for 2017, P400,000; on charge accounts, P200,000.
 Account balances from installment sales made prior to 2016 were also collected.
 Repossession for the year was on installment contracts for 2016 on which the uncollected balance at
the time of repossession amounted to P50,000.
 Merchandise repossessed was erroneously debited as a newly acquired merchandise equal to the
amount defaulted by the customer.
 Appraisal reports show that this repossessed merchandise has a true worth of P20,000 at the time
of repossession and remain unsold at year end.
 The final inventory of the merchandise (new) valued at cost amounted to P45,000.

A. P626,250
B. P756,250
C. P495,000
D. P365,000

## 2. Net Income in 2017

A. P331,250
B. P301,250
C. P328,750
D. P382,500

PROBLEM 9

The chief accountant of Sony Appliances Inc. provided the following balances from its unadjusted trial
balance for the year ended December 31, 2023:

## Account January 1, 2023 December 31, 2023

Installment receivable – 2021 contract P2,000,000 P500,000
Installment receivable – 2022 contract P3,000,000 P1,000,000
Installment receivable – 2023 contract P5,000,000
Deferred gross profit – 2021 contract P800,000
Deferred gross profit – 2022 contract P1,800,000
New inventory P200,000 P300,000
Net purchases P5,000,000
Freight in P100,000
Cash sales for year 2023 P2,000,000
Installment sales for year 2023 P8,000,000

The following additional notes are provided for the year ended December 31, 2023:

 The gross profit rate for 2023 installment sales is the average of previous year’s gross profit rate
for instalment sales.
 On July 1, 2023, Sony wrote off 2021 installment receivable with account balance of P300,000
because of the bankruptcy of the customer. Sony records its impairment loss of instalment
receivable using direct write off method.
 On October 1, 2023, a 2022 contract customer defaulted on the instalment due which resulted
to repossession of the inventory with fair value of P100,000. The defaulyed account has a
balance of P600,000.
 On November 1, 2023, the repossessed inventory was sold at a cash price of P150,000 after
reconditioning it at a cost of P20,000. The sale of repossessed inventory is not yet reflected on
the cash sales stated above.
 The total operating expenses, exclusive of impairment loss and loss on repossession, of Sony for
the year ended December 31, 2023 amount to P400,000.

1. What is the net income to be reported by Sony Inc. for the year ended December 31, 2023?
a. 2,840,000
b. 3,130,000
c. 3,520,000
d. 2,980,000

2. What is the total adjusted deferred gross profit as of December 31, 2023, respectively?
a. 3,200,000
b. 3,300,000
c. 3,100,000
d. 3,400,000