CHAPTER 9

Installment Sales
MULTIPLE CHOICE ANSWERS AND SOLUTIONS
9-1: d
Deferred gross profit, Dec. 31 (before adjustment)
Less:
Deferred gross profit, Dec. 31 (after adjustment)
Installment accounts receivable, Dec. 31
Gross profit rate
Realized gross profit, 2013
OR
Installment Sales (P1,050,000 25%)
Less: Installment account receivable, Dec. 31
Collection
Gross profit rate
Realized gross profit, 2013

P1,050,000
P1,500,000
____ 25%

__375,000
P 675,000
P4,200,000
__1,500,00
P2,700,000
___X 25%
P 675,000

9-2: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2011 (6,000 X 35%)
2012 (61,500 X 33%)
2013 (195,000 X 30%)
Realized gross profit, December 31, 2013
(Total P107,235)

2011
P7,230

2012
P 60,750

2013
P 120,150

2,100
20,295
P5,130

P 40,455

___58,500
P 61,650

9-3: c
Deferred gross profit balance, end
Divide by Gross profit rate based on sales (25% 125%)
Installment Accounts Receivable, end
Collection
Installment Sales

P 202,000
____ 20%
P1,010,000
___440,000
P1,450,000

9-4: b
Sales
Cost of installment sales
Deferred gross profit
Less:
Deferred gross profit, end
Installment accounts receivables, 12/31
(1,000,000-400,000)
Gross profit rate (300,000 1,000,000)
Realized gross profit
Operating expenses
Operating income
Interest and financing charges
Net income

P1,000,000
__700,000
P 300,000

P 600,000
___X 30%

__180,000
P 120,000
___80,000
40,000
__100,000
P 140,000

9-5: a
Market value of repossessed merchandise
(before reconditioning cost)
Less: unrecovered cost
Unpaid balance (80,000-30,000)
Less: Deferred gross profit (50,000X20%)
Loss on repossession

P 30,000

P 50,000
___10,000

__40,000
(P 10,000)

9-6: a
Installment sales
Less: collection on installment sales
Installment account receivables, 12/31/08
Gross profit rate (500,000 1,000,000)
Deferred gross profit, 12/31/08

P1,000,000
__200,000
800,000
___X 50%
P 400,000

OR
Deferred gross profit (1,000,000-500,000)
Less: Realized Gross Profit (200,000 X 50%)
Deferred gross profit, 12/31/13

P500,000
_100,000
P400,000

Fair value of repossessed merchandise

Less:
unrecovered cost
Unpaid balance
Less: Deferred gross profit (200,000 X 32.5%)
Loss on repossession

P120,000

9-7: d

P 200,000
___65,000

_135,000
(P 15,000)

9-8: b
Realized gross profit:
Collections:
Downpayment
Installment received (205,000-200,000)
Total
Gross Profit Rate (150,000 240,000)
Realized gross profit
Gain (loss) on repossession:
Appraised value of repossessed merchandise
Less: unrecovered cost
unpaid balance
less: deferred gross profit (200,000 X 62.5%)
Gain on repossession

P 35,000
___5,000
40,000
_X 62.5%
P 25,000

P165,000
P 200,000
__125,000

__75,000
P 90,000

9-9: b
Sch.1

Date
Apr-1
Apr-1
May-1
Jun-1
Jul-1
Aug-1

Collection

Applying
to
Interest

Applying
to
principal

125.00
115.00
104.80
__94.40
P439.20

750.00
500.00
510.00
520.20
___530.60
P2,810.80

750
625
625
625
625

Gain (loss) on repossession:

Market value of repossessed merchandise
Less: unrecovered cost
unpaid balance of principal (sch. 1)
less: deferred gross profit (4,189 X 35%)
Loss on repossession (rounded)

Balance
of
principal
P7,000.00
6,250.00
5,750.00
5,240.00
4,719.80
4,189.00

P 1,875
P 4,189
__1,466

Realized gross profit:

Collection applying to principal (sch. 1)
Gross profit rate
Realized gross profit
9-10: c

___2,723
(P 848)

P2,810.80
__X 35%
P 983.78
Year of Sales
2012

Deferred gross profit (Sales X Gross Profit Rate)

2012
(P300,000 X 30%)
2013
(P450,000 X 40%)
2012:
Accounts written-off (P25,000 X 30%)
Realized gross profit (P100,000 X 30%)

2013

P 90,000
P 180,000
( 7,500)
( 30,000)

2013:

Accounts written-off, 2012 (P75,000 X 30%)

Accounts written-off, 2013 (P50,000 X 40%)
Realized gross profit, 2012 (P50,000 X 30%)
Realized gross profit, 2013 (P150,000 X 40%)
Deferred gross profit, 12/31/08 (P75,000)

( 22,500)
( 60,000)
( 15,000)
________
P 15,000

( 60,000)
P 60,000

9-11: a
Deferred gross profit, 2012 (P1,050,000 - 735,000)
Realized gross profit, 2012 (P150,000 X 30%)
Deferred gross profit, 12/31/12
Realized gross profit, 2013 (P390,000-90,000) X 30%
Deferred gross profit, 12/31/13

P 315,000
( 45,000)
270,000
( 90,000)
P 180,000

9-12: a
2012
P 480,000
( 252,000)
( 180,000)
_______
P 48,000

Deferred gross profit (Sales - Cost of Installment Sales)

Realized gross profit, 2012 (P630,000 X 40%)
Realized gross profit, 2012 (P450,000 X 40%)
Realized gross profit, 2013 (P900,000 X 30%)
Deferred gross profit, 12/31/13 (P228,000)

2013
P450,000

( 270,000)
P180,000

9-13: c
Trade-in value
Less:
Actual value
Estimated selling price
Less: reconditioning cost
normal gross profit (25,000 X 15%)
Overallowance
Realized gross profit:
Collection:
Downpayment
Actual value of merchandise-Trade In
Installment collected (5,000 X 3)

P 30,000
P 25,000
P 1,250
__3,750

___5,000

P 5,000
20,000
_15,000

Gross Profit Rate:

Sales
Overallowance
Net Sales
Cost of Installment Sales
Gross Profit
Gross Profit Rate (15,000 75,000)
Realized Gross Profit

__20,000
P 10,000

P 40,000

P 85,000
( 10,000)
P 75,000
_60,000
P 15,000
___X 20%
P 8,000

9-14: c
Collection excluding interest (P900,000-P300,000)
Gross profit rate (P1,200,000 P3,600,000)
Realized Gross Profit, December 31, 2013
Add Interests
Total Revenue

P 600,000
X 33 1/3%
200,000
__300,000
P 500,000

9-15: a
Wholesale value of repossessed merchandise
Less:
unrecovered cost
Unpaid balance:
Sales, 10/1/12
Collection, 2012 (6,000 2,000)
Collection, 2013 (1,000 X 7)
Deferred gross profit (9,000 X 25%)
Loss on repossession
9-16: a

P 24,000
( 8,000)
( 7,000)

P 9,000
__2,250

4,000

___6,750
(P 2,750)

Trade-in Value (P300 X 6)

Less:
Actual value
Estimated selling price (P315 X 6)
Less: Reconditioning cost (P25 X 6)
Gross Profit (P1,890 X 10%)
Over-allowance

1,800

P 1,890
P150
_189

___339

___1,551
P
249

9-17: a
Deferred gross profit, before adjustment
Deferred gross profit, end
2012: P32,500 X (30% 130%)
2013: P180,000 X (33 1/3% 133 1/3%)
Realized gross profit on installment sales

P 76,000
P 7,500
_45,000

__52,500
P 23,500

9-18: d
Unpaid balance (P27,000 - P16,000)
Multiply by gross profit rate (P734,400 P2,160,000)
Deferred gross profit to be cancelled on repossession

P 11,000
___X 34%
P 3,740

Collection:
2012
Downpayment
2013
Installment collection
Interest
Total

P 600,000
600,000
__540,000
P1,740,000

Cost to be recovered

P4,000,000

9-19: b

Since cost is not yet fully recovered, then no gross profit is to be recognized in 2013.
9-20: d
Regular Sales
Cost of regular sales
Gross profit on regular sales
Add: Realized gross profit on installment sales
2012 (25,000 X 50%)
2013 (62,500 X 55%)
Total realized gross profit
Operating expenses
Net income, 12/31/13
9-21: a

Installment sales 2012

Collections:
Down payment (20% x 785,000)
Installment (40% x 628,000)
Installment accounts receivable 2012, 12/31/07
Gross profit rate on sales
Deferred gross profit- 2012, 12/31/12

P 187,500
__112,500
P 75,000
P12,500
_34,375

__46,875
121,875
___31,250
P 90,625

P785,000
P157,000
251,200 408,200
376,800
35/135
P 97,689

9-22: a
Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Installment sales (1,093,750 x 240%)
Installment accounts receivable-12/31/13
Collections
Gross profit on rate on sales

P1,575,000
1,050,000
525,000
2,625,000
1,575,000
1,050,000
140/240

612,500

Total realized gross profit

Operating expenses (1,137,500 x 70%)
Net income

1,137,500
796,250
P 341,250

Regular sales
Cost of regular sales
Gross profit on regular sales
Realized gross profit on installment sales:
Collections excluding Interest (312,000 24,000)
Gross profit rate (270,000/900,000)
Total realized gross profit
Loss on repossession
Fair value of repossessed merchandise
Less: Unrecovered cost (100,000 x 70%)
Total realized GP after loss on repossession
Less: Operating expenses
Installment accounts written-off (44,000 x .70)
Net operating income
Interest income
Net income

P375,000
215,000
160,000

9-23: a

288,000
30%

86,400
246,400

54,000
70,000

( 16,000)
230,400

72,000
30,800

102,800
127,600
24,000
P151,600

SOLUTIONS TO PROBLEMS

Problem 9 1
Journal Entries:
Installment A/R2011...........................
Installment A/R2012
Installment A/R2013...........................
Installment Sales ...........................

2011
104,000

104,000

2012

116,000

116,000

2013

121,000
121,000

Cost of Installment Sales ......................

Inventory.......................................

64,480
64,480

68,440
68,440

73,810
73,810

Cash ......................................................
Installment A/R2011
Installment A/R2012...................
Installment A/R2013...................
Interest Revenue ...........................

66,980
57,200

9,780

125,520
29,120
71,920
_
24,480

145,460
15,000
26,680
76,230
27,550

Installment Sales...................................
Cost of Installment Sales ..............
Deferred Gross Profit2011 ..........
Deferred Gross Profit2012 ..........
Deferred Gross Profit2013 ..........

104,000
64,480
39,520

116,000
68,440

47,560

121,000
73,810

47,190

Deferred Gross Profit2011..................

Deferred Gross Profit2012..................
Deferred Gross Profit2013..................
Realized Gross Profit ....................
Computations:
2011:
P57,200 X .38

21,736

21,736

P21,736

2012:

P29,120 X .38
P71,920 X .41
Total RGP

=
=

P11,066
29,987
P40,553

2013:

P15,000 X .38
P26,680 X .41

=
=

P 5,700
10,939

11,066
29,487

40,553

5,700
10,939
29,730
46,369

P76,230 X .39
Total RGP

2012:

2013:

29,730
P46,369

Problem 9 2
Inventory ........................................................................................................... 45,200
Cash...........................................................................................................
Notes Receivable 2012 (P32,000 + P62,000 + 3,600)....................................... 97,600
Unearned Interest Revenue (P7,167 + P3,600)..........................................
Installment Sales........................................................................................
Cost of Installment Sales (P45,200 P2,000 inventory increase) ..................... 43,200
Inventory ...................................................................................................
Cash..... ............................................................................................................. 35,600
Notes Receivable 2012 ..............................................................................
Unearned Interest Revenue 2012....................................................................... 3,600
Interest Revenue ........................................................................................
Installment Sales ............................................................................................... 86,833
Cost of Installment Sales ...........................................................................
Deferred Gross Profit on Installment Sales2012......................................
Deferred Gross Profit on Installment Sales2012 ............................................. 16,080*
Realized Gross Profit on Installment Sales................................................
*Gross profit percentage: 50.25% (P43,633 P86,833)
.5025 x 32,000 = P16,080
Inventory ........................................................................................................... 52,020
Cash...........................................................................................................
Notes Receivable2013 ..................................................................................... 89,5001
Unearned Interest Revenue........................................................................
Installment Sales........................................................................................
160,000 + (P50,000 + P5,500) P26,000* = 89,500
*2012 Notes receivable collected in 2013
2Interest revenue from 2012 notes: P7,167 P5,579 = P1,588
Interest revenue from 2013 notes: P5,500 P1,588 = P3,912
Discount on notes receivable at end of 2013 ..................................................... P 8,043
Interest revenue from 2013 notes (see above) ................................................... 3,912
Total discount at time of sale............................................................................. P11,955
Cost of Installment Sales (P52,020 P8,000) ................................................... 44,020
Inventory ...................................................................................................
Cash..... ............................................................................................................. 55,500
Notes Receivable2012 (P62,000 P36,000) ...........................................
Notes Receivable2013 .............................................................................
* P89,500 P60,000 = P29,500
Discount on Notes Receivable2012................................................................. 1,588
Discount on Notes Receivable2013................................................................. 3,912
Interest Revenue ........................................................................................
Installment Sales ............................................................................................... 77,545
Cost of Installment Sales ...........................................................................
Deferred Gross Profit on Installment Sales2013......................................
Deferred Gross Profit on Installment Sales2012 (P26,000
P1,538 = P24,412; P24,412 x .5025) .............................................................. 12,267
Deferred Gross Profit on Installment Sales2013 ............................................. 11,062*
Realized Gross Profit on Installment Sales................................................
profit percentage: 43.23% (P33,525 P77,545)
.4323 x (P29,500 P3,912) = P11,062

1.

2011:

Gross profit rate

2012:

Gross profit rate

Deferred gross profit, 1/1

Install. contracts rec'l, 1/1

Deferred gross profit, 1/1

P24,000

P60,000
P24,000

40%

42%

45,200
10,767
86,833
43,200
35,600
3,600
43,200
43,633
16,080

52,020
11,9552
77,545

44,020
26,000
29,500*

5,500
44,020
33,525

23,329

Install. contracts rec'l, 1/1

2013:
2.

Gross profit rate

Gross profit
=
=
Installment sales

P140,000
P86,000
=
P200,000

Journal Entries:
Accounts Receivable .................................................................................................
Sales .... .............................................................................................................
Installment Contracts Receivable 2013 ..................................................................
Installment Sales ...............................................................................................
Cost of Installment Sales...........................................................................................
Shipments on Installment Sales.........................................................................
Purchases..... .............................................................................................................
Cash..... .............................................................................................................
Selling Expenses .......................................................................................................
Cash..... .............................................................................................................
Cash....... ..... .............................................................................................................
Accounts Receivable .........................................................................................
Installment Contracts Receivable 2011 ..........................................................
Installment Contracts Receivable 2012 ..........................................................
Installment Contracts Receivable 2013 ..........................................................
Adjusting Entries:
Installment Sales .......................................................................................................
Cost of Installment Sales ...................................................................................
Deferred Gross Profit on Installment sales 2013 ............................................
Deferred Gross Profit 2011 (P40,000 x 40%).........................................................
Deferred Gross Profit 2012 (P80,000 x 42%).........................................................
Deferred Gross Profit 2013 (P110,000 x 43%).......................................................
Realized Gross Profit.........................................................................................
Doubtful Accounts Expense (1/4 x 1% x P600,000) .................................................
Allowance for Doubtful Accounts.....................................................................
Closing Entries:
Sales ...... ..... .............................................................................................................
Merchandise Inventory, December 31.......................................................................
Shipments on Installment Sales.................................................................................
Merchandise Inventory, January 1.....................................................................
Purchases...........................................................................................................
Selling Expenses ...............................................................................................
Doubtful Accounts Expense ..............................................................................
Income Summary ..............................................................................................
Realized Gross profit.................................................................................................
Income Summary ..............................................................................................
Income Summary ......................................................................................................
Retained Earnings .............................................................................................

3.

43%

600,000
600,000
200,000
200,000
114,000
114,000
476,000
476,000
210,000
210,000
790,000
560,000
40,000
80,000
110,000

200,000
114,000
86,000
16,000
33,600
47,300
96,900
1,500
1,500

600,000
260,000
114,000
240,000
476,000
210,000
1,500
46,500
96,900
96,900
143,400
143,400

Good Buy Mart

Income Statement
Year Ended December 31, 2013
Sales ...... ..... .............................................................................................................
Cost of sales:
Merchandise inventory, January 1.....................................................................
Purchases...........................................................................................................
Cost of goods available for sale.........................................................................
Less Shipments on installment sales..................................................................
Cost of goods available for regular sales ...........................................................
Less Merchandise inventory, December 31.......................................................
Gross profit on regular sales......................................................................................
Add Realized gross profit on installment sales (Schedule 1).....................................
Total realized gross profit..........................................................................................

P600,000
P240,000
476,000
716,000
114,000
602,000
260,000

342,000
258,000
96,900
354,900

Operating expenses:
Selling expenses ................................................................................................
Doubtful accounts expense................................................................................
Net income .............................................................................................................

210,000
1,500

211,500
P143,400

Schedule 1

Collections ..............................................
Multiply by Gross profit rate......................
Realized gross profit...................................
4.

Years of Installment Sales

2012
2013
P80,000
P110,000
42%
43%
P33,600
P 47,300

2011
P40,000
40%
P16,000

Good Buy Mart

Balance Sheet
December 31, 2013
A s s e t s
Cash....... ..... .............................................................................................................
Merchandise inventory..............................................................................................
Accounts receivable ..................................................................................................
Allowance for doubtful accounts...............................................................................
Installment contracts receivable 2011 ....................................................................
Installment contracts receivable 2012 ....................................................................
Installment contracts receivable 2013 ....................................................................
Other assets .............................................................................................................
Total Assets .......................................................................................................
Liabilities and Equity
Liabilities:
Accounts payable ..............................................................................................
Deferred gross profit on installment sales 2011 .............................................
Deferred gross profit on installment sales 2012 .............................................
Deferred gross profit on installment sales 2013 .............................................
Total Liabilities .................................................................................................
Equity:
Capital stock......................................................................................................
Retained earnings ..............................................................................................
Total Liabilities and Equity ...............................................................................

Total

P 96,900

P144,000
260,000
P 62,000
3,500

58,500
20,000
60,000
90,000

200,000
P832,500

P 60,000
8,000
25,200
38,700
131,900
P406,000
294,600

700,600
P832,500

Problem 9 4

1.

2.

2012: GP rate

Deferred gross profit, 1/1

Install. contracts rec'l, 1/1

2013: GP rate

Gross profit

Installment sales

=
=

P21,600 + P1,200

P24,000 + P52,000
P150,000 P97,500

P150,000

Installment Sales .......................................................................................................

Cost of Installment Sales ...................................................................................
Deferred Gross Profit, 2013 ..............................................................................
Deferred Gross profit, 2012.......................................................................................
Deferred Gross Profit, 2013 ......................................................................................
Realized Gross Profit.........................................................................................

=
=

P22,800

P76,000

30%

P52,500

P150,000

35%

150,000
97,500
52,500
14,400
25,900
40,300

Computation:

Installment contracts receivable, 1/1 ............................

Less Installment contracts receivable, 12/31 ................
Total credit for the period.............................................
Less Credit representing repossession ..........................
Credit representing collections .....................................

2012
Sales
P76,000
24,000
52,000
4,000
P48,000

2013
Sales
P150,000
76,000
74,000

P 74,000

Total

Multiply by Gross profit rate ........................................

Realized gross profit.....................................................

30%
P14,400

35%
P 25,900

Sales ...... ..... .............................................................................................................

Realized Gross Profit ................................................................................................
Loss on Repossession........................................................................................
Cost of Sales......................................................................................................
Selling and Administrative Expenses ................................................................
Income Summary ..............................................................................................
Income Summary ......................................................................................................
Retained Earnings .............................................................................................
3.

P 40,300

212,000
40,300
400
165,000
66,000
20,900
20,900
20,900

Apple Company
Income Statement
Year Ended December 31, 2013
Sales ...... ..... ............................................................................................................. ....................
Cost of sales ............................................................................................................. ....................
Gross profit on regular sales...................................................................................... ....................
Add Realized gross profit on installment sales (Schedule 1)..................................... ....................
Total realized gross profit.......................................................................................... ....................
Less Loss on repossession......................................................................................... ....................
Total realized gross profit after adjustment for loss on repossession ........................ ....................
Selling and administrative expenses.......................................................................... ....................
Net income .. ............................................................................................................. ....................

P212,000
165,000
47,000
40,300
87,300
400
86,900
66,000
P 20,900

Problem 9 4
Schedule 1
2012
Sales
P76 000
24,000
52,000
4,000
P48,000
30%
P14,400

Installment contracts receivable, 1/1 ..........................................

Less Installment contracts receivable, 12/31 ..............................
Total credit for the period...........................................................
Less Credit representing repossession........................................
Credit representing collections ...................................................
Multiply by Gross profit rate......................................................
Realized gross profit...................................................................

2013
Sales
P150,000
76,000
74,000

P 74,000
35%
P 25,900

Total

P40,300

Problem 9 5
1.

Cost of Installment Sales...........................................................................................

Shipments on Installment Sales.........................................................................

54,400

Installment Sales .......................................................................................................

Cost of Installment Sales ...................................................................................
Deferred Gross Profit, 2013 ..............................................................................
Gross profit = P25,600 P80,000 =32%
Deferred Gross Profit, 2012 ......................................................................................
Deferred Gross Profit, 2013 ......................................................................................
Realized Gross Profit.........................................................................................

80,000

54,400

54,400
25,600
14,000
8,000
22,000

Computation:

Installment contracts receivable, 1/1 ............................

Less Installment contracts receivable, 12/31 ................
Total credit for the period.............................................
Less Credit representing repossession ..........................
Credit representing collections .....................................

2012
Sales
P82,000
_ 36,000
46,000
__6,000
P40,000

2013
Sales
P 80,000
_55,000
25,000
___

P 25,000

Total

Multiply by Gross profit rate ........................................

Realized gross profit.....................................................

*2012 Gross profit rate=

2.

DGP, 1/1

ICR, 1/1

__35%*
P14,000

___32%
P 8,000

P 22,000

P28,700 (26,600 + 2,100)

=
35%
P82,000 (36,000 + 40,000 + 6,000)

Sales ...... ..... .............................................................................................................

Merchandise Inventory, December 31.......................................................................
Shipments on Installment Sales.................................................................................
Merchandise Inventory, January 1.....................................................................
Purchases...........................................................................................................
Repossessed Merchandise .................................................................................
Loss on Repossession........................................................................................
Operating Expenses...........................................................................................
Income Summary ..............................................................................................

200,000
52,000
54,400

Realized Gross Profit ................................................................................................

Income Summary ..............................................................................................

22,000

Income Summary ......................................................................................................

Retained Earnings .............................................................................................

31,500

60,000
180,000
3,000
900
53,000
9,500

22,000

31,500

PPG Discount Center, Inc.

Income Statement
Year Ended December 31, 2013

Sales ...... ..... ..............................................................

Cost of sales:
Inventory, January 1 ...........................................
Purchases............................................................
Repossessed merchandise...................................
Cost of goods available for sale..........................
Less Shipments on installment sales...................
Cost of goods available for regular sales ............
Less Inventory, December 31.............................
Gross profit ..............................................................
Less Deferred gross profit on installment
sales, 2013 ..........................................................
Realized gross profit, 2013.........................................
Add Realized gross profit on 2012
installment sales .................................................
Total realized gross profit...........................................
Less Loss on repossession..........................................
Total realized gross profit after adjustment
for loss on repossession......................................
Operating expenses ....................................................
Net income ..............................................................

P 60,000
180,000
__3,000
243,000
_54,400
188,600
_52,000

Regular
P200,000

Installment
P80,000

Total
P280,000

_136,600
P 63,400

54,400
25,600

191,000
89,000

17,600
8,000

17,600
71,400

14,000
22,000
___900

14,000
85,400
__900

P21,100

84,500
_53,000
P31,500

Problem 9 6
1.

London Products
Schedule of Cost of Goods Sold
Year Ended December 31, 2013
Merchandise inventory, January 1............................................................................. ....................
Purchases
............................................................................................................. ....................
Freight-in
............................................................................................................. ....................
Repossessed merchandise.......................................................................................... ....................
Cost of goods available for sale................................................................................. ....................

P 48,000
238,000
12,000
14,000
312,000

Less Merchandise inventory, December 31............................................................... ....................

Cost of goods sold..................................................................................................... ....................
2.

London Products
Schedule of Allocation of Cost of Goods Sold
Year Ended December 31, 2013

Amount
Cash sales ....................
P60,000
Charge sales ....................120,000
Installment sales ...............
300,000

3.

52,000
P260,000

On Cash
Price Basis
P 60,000
100,000
240,000
P 400,000

120%
125%

Ratio to
Total
60/400
100/400
240/400

Allocated
Cost
P 39,000
65,000
156,000
P260,000

London Products
Income Statement
Year Ended December 31, 2013

Sales ...... ..... ...........................................

Cost of goods sold...................................
Gross profit ...........................................
Less Unrealized gross profit:
On installment contracts
receivable,12/31 (192,000 x 144/300)
Realized gross profit................................
Add Realized gross profit on
prior years' sales (Schedule 1):
2011.........................................
19,200
2012.........................................
14,700
Total realized gross profit........................
Less Loss on repossession
(Schedule 2) ....................................
Total realized gross profit after
adjustment for loss on
repossession.....................................
Less Operating expenses .........................
Net income ...........................................

Installment
Total
Sales
P480,000
P 300,000
260,000
156,000
P 220,000 P 144,000

92,160
127,840

92,160
51,840

33,900
161,740

33,900
85,740

10,200

10,200

151,540
93,000
P 58,540

P 75,540

Charge
Sales
P120,000
65,000
P 55,000

Cash
Sales
P 60,000
39,000
P 21,000

Schedule 1
2011
Installment contracts receivable, January 1:
2011 P32,000 40%.....................................................................................
2012 P56,000 35%.....................................................................................
Less Installment contracts receivable, December 31.................................................
Total credits .............................................................................................................
Less Credit representing repossession.......................................................................
Total collections ........................................................................................................
Multiply by Gross profit rate.....................................................................................
Realized gross profit..................................................................................................

2012

P80,000
_22,000
58,000
_10,000
P48,000
___40%
P19,200

P160,000
__90,000
70,000
28,000
P 42,000
___35%
P 14,700

2011
P 2,000

2012
P12,000

Total
P 14,000

10,000

28,000

38,000

Schedule 2
Fair market value of repossessed merchandise.....................
Less Unrecovered cost:
Unpaid balance.............................................................
Less Unrealized profit
2011 P10,000 x
40% ....................................
2012 P28,000 x
35% ....................................
Balances
........................................................................
Gain (loss) on repossession ..................................................

4,000
__6,000
P(4,000)

9,800
18,200
P( 6,200)

13,800
__24,200
P( 10,200)

Problem 9 7
1.

2012
2012
2012 installment sales (P400,000 x 42%*)........................................................
2013:
2012 installment sales (P173,000 x 42%)..........................................................
2013 installment sales (P560,000 x 38.5%*).....................................................
Deferred gross profit .................................................................................................

2013

P 168,000

________
P 168,000

P 72,660
__215,600
P 288,260

*Computation of Gross profit percentages (see next page)

2012
Installment sales ........................................................................................................ P2,210,000
Less Trade-in allowances (P226,000 P158,000) ....................................................
_______
Adjusted installment sales .........................................................................................
2,210,000
Cost of sales:
Inventories, January 1 (new) .............................................................................

Purchases (new).................................................................................................
1,701,800
Repossessed merchandise..................................................................................

Cost of goods available for sale.........................................................................

1,701,800
Less: Inventories, December 31
New merchandise ......................................................................................
Repossessed merchandise..........................................................................
Total ..........................................................................................................
Cost of sales ......................................................................................................
Gross profit .............................................................................................................
Gross profit percentages............................................................................................
*2012 : P195,000 x 20%
=P39,000
2013 : P110,000 x 40%
=_44,000
P83,000
Uncollectible installment contracts expense, per books ...................
Correct Uncollectible installment contracts expense:
Fair market value of repossessed merchandise
2012 sales (P195,000 x 20%) ...........................................
2013 sales (P110,000 x 40%) ...........................................
Unrecovered cost
2012 sales [P105,000 x (100% 42%)] ...........................
2013 sales [P82,000 x (100% 38.5%)] ..........................
Adjustment to Uncollectible installment contracts expense .............

2013
P3,100,000
____68,000
_3,032,000
420,000
1,767,000
_83,000*
2,270,000

420,000
_______
420,000
1,281,800
P 928,200

358,820
____46,500
405,320
_1,864,680
P1,167,320

42%

38.5%

P 99,000

P 39,000
__44,000

P 83,000

60,900
__50,430

__111,330

__28,330
P 70,670

Installment
Sales
P3,032,000
1,864,680
1,167,320

Total
Sales
P3,237,000
_2,022,680
1,214,320

__247,170
920,150

__247,170
967,150

___51,240
971,390
___28,330
P 943,060

___51,240
1,018,390
___28,330
990,060
__592,960
P 397,100

Fortune Sales Corporation

Income Statement
Year Ended December 31, 2013
Cash
Sales
Sales
.................................................................................... P205,000
Cost of sales .................................................................................... _158,000_
Gross profit .................................................................................... P 47,000
Less Unrealized gross profit on 2010 installment
sales (Schedule 1) .....................................................................
Realized gross profit on 2013 sales ..................................................
Add Realized gross profit on 2012 installment
sales (Schedule 2) .....................................................................
Total realized gross profit.................................................................
Less Uncollectible installment contracts expense ............................
Total realized gross profit after adjustment ......................................
Operating expenses ..........................................................................
Net income ....................................................................................

Schedule 1
Installment contracts receivable 2013, December 31 ........................... ...............
Installment contracts receivable 2013 defaulted................................... ...............
Total ...... ..... ........................................................................................ ...............
Multiply by 2013 gross profit percentage............................................. ...............
Unrealized gross profit on 2013 installment sales ................................ ...............

P 560,000
___82,000
P 642,000
___38.5%
P 247,170

Schedule 2
Installment contracts receivable 2012, January 1 ......................................................
Less Installment contracts receivable 2012, December 31 ........................................
Total credits for the period ........................................................................................
Less Installment contracts receivable 2012 defaulted ...............................................
Total collections ........................................................................................................
Multiply by 2012 gross profit percentage..................................................................
Realized gross profit on 2012 installment sales.........................................................
1.

P 400,000
__173,000
227,000
__105,000
P 122,000
_____42%
P 51,240

Apportionment of cost (P600,000) to Lots 1, 2 and 3:

Lot 1 : 2/3 x P360,000 ................................................
Lot 2 : 2/3 x P240,000 ................................................
Lot 3 : 1/3 ...................................................................
1/3 x P240,000......................................................
Total cost......................................................................

P 240,000
160,000
P120,000
__80,000

Journal Entries for 2012

March 31
Cash....... ..... ........................................................................................................
Notes Receivable (Lot 2)......................................................................................
Lot 2 ........................................................................................................
Deferred gain on Sale of Land......................................................................
June 30
Cash....... ..... ........................................................................................................
Notes Receivable (Lot 3)......................................................................................
Lot 3 .... ........................................................................................................
Deferred Gain on Sale of Land.....................................................................
Cash....... ..... ........................................................................................................
Interest Income (P364,000 x 12% x 3/12) ....................................................
Notes Receivable (Lot 2)..............................................................................
September 30
Cash....... ..... ........................................................................................................
Interest Income (P358,920 x 12% x 3/12) ....................................................
Notes Receivable (Lot 2)..............................................................................
October 31
Cash....... ..... ........................................................................................................
Notes Receivable (Lot 1)......................................................................................
Lot 1 .... ........................................................................................................
Deferred Gain on Sale of Land.....................................................................
December 31
Cash....... ..... ........................................................................................................
Notes Receivable (Lot 1)..............................................................................
Notes Receivable (Lot 2)..............................................................................
Notes Receivable (Lot 3)..............................................................................
Interest Income.............................................................................................

__200,000
P 600,000

36,000.00
364,000.00
160,000.00
240,000.00
120,000.00
720,000.00
200,000.00
640,000.00
16,000.00
10,920.00
5,080.00
16,000.00
10,767.60
5,232.40
72,000.00
288,000.00
240,000.00
120,000.00
78,000.00
6,240.00
5,389.37
6,800.00
59,570.63

Computation:
Collections ...................................................

Total
P78,000.00

Lot 1
P12,000.00

Lot 2
P16,000.00

Lot 3
P50,000.00

Apply to interest:
Lot 1 P288,000.00 x 12% x 2/12..........
5,760.00
Lot 2 P353,687.60 x 12% x 3/12..........
59,570.63
10,610.63
Lot 3 P720,000.00 x 12% x 6/12..........______________________________________________ _43,200.00
Apply to principal ........................................
P18,429.37
P 6,240.00
P 5,389.37
P 6,800.00
2.

Deferred Gain on Sale of Land (Lot 1)......................................................................

Deferred Gain on Sale of Land (Lot 2)......................................................................
Deferred Gain on Sale of Land (Lot 3)......................................................................
Realized Gain on Sale of Land ..........................................................................

26,080.00
31,021.06
96,368.00
153,469.06

Computation:
Lot 1
P78,240.00

Collections applied to principal ...................

Multiply by Gross profit rates:
Lot 1 P120,000 P360,000................
Lot 2 P240,000 P400,000................
Lot 3 P640,000 P840,000................
Realized gain................................................
3.

Lot 2
P51,701.77

Lot 3
P126,800.00

60%
_________
P31,021.06

_____76%
P96,368.00

33.33%
_________
P26,080.00

Lot 3 (80% x P200,000) ............................................................................................

Deferred Gain on Sale of Land (Lot 3) (P640,000 P96,368)..................................
Loss on Repossession................................................................................................
Notes Receivable (Lot 3) (P720,000 P6,800).................................................

160,000.00
543,632.00
9,568.00
713,200.00

Problem 9 9
Galaxy Investment Company
Income Statement
Year Ended December 31, 2013
Sales Schedule 1) .............................................................................................................
Cost of sales (Schedule 2)....................................................................................................
Gross profit ...... ..... .............................................................................................................
Less Sales commissions.......................................................................................................
Gross profit ...... ..... .............................................................................................................
Less Deferred gross profit
Installment Notes Balance
P5,370,000

=
=67% x P6,227,000
Installment Sales
P8,060,000
Realized gross profit ............................................................................................................
Expenses:
Advertising and promotion........................................................................................
Sales manager's salary...............................................................................................
General office expenses (1/4 x P236,000).................................................................
Net profit ....... ..... .............................................................................................................

P 8,060,000
1,612,000
6,448,000
221,000
6,227,000

4,172,090
2,054,910
P 730,000
120,000
59,000

909,000
P 1,145,910

Schedule 1

A lots : 26 @ P150,000.........................................................
B lots : 32 @ P100,000 .........................................................
C lots : 12 @ P80,000 ...........................................................
..............................................................

Total
Sales Price
P3,900,000
3,200,000
960,000
P8,060,000

Cash
Received
P1,650,000
800,000
240,000
P2,690,000

Installment
Notes Balance
P 2,250,000
2,400,000
720,000
P 5,370,000

Unit
Price
P150,000
100,000
80,000

Total
Sales Value
P12,000,000
10,000,000
9,600,000
P31,600,000

Schedule 2
Class
A............ ..... ..............................................................
B............ ..... ..............................................................
C............ ..... ..............................................................
Total .... ..............................................................

Number of
Lots
80
100
120
300

Cost of tract:
Cost of land .............................................................................................................
Legal fees, etc............................................................................................................
Grading contract........................................................................................................
Water and sewerage system contract.........................................................................
Paving contract..........................................................................................................
General office expenses (3/4 x P236,000).................................................................
Total ...... ..... .............................................................................................................

P 4,800,000
600,000
225,000
184,900
266,300
177,000
P 6,253,200

P6,253,200
Cost rate : = 20% (rounded off)
P31,600,000
Cost of sales (P8,060,000 x 20%) ...................................................................................... P 1,612,000
Problem 9 10
Rizal Company
Income Statement
Year Ended December 31, 2013
Installment sales [(P14,300 x 7) + (P725 x 4)] ....................................................................
Cost of goods sold on installment (schedule 1)....................................................................
Gross profit ...... ..... .............................................................................................................
Less Deferred gross profit on 19x8 sales
(P103,000 P21,000 = P82,000 x 23%*) ................................................................
Realized gross profit on 2013 sales......................................................................................
Add Realized gross profit on prior years' sales
2011 : P60,000 x 33-1/3* ..........................................................................................
2012 : P115,000 x 35%* ...........................................................................................
Total realized gross profit ....................................................................................................
Less Loss on repossession (Schedule 4)...............................................................................
Total realized gross profit after adjustment..........................................................................
General and administrative expenses ...................................................................................
Net income (loss) .............................................................................................................

P103,000
__79,310
23,690
__18,860
4,830
P20,000
_40,250

__60,250
65,080
__33,100
31,980
__50,000
P(18,020)

*See Schedule 3
Schedule 1
Purchases (P10,500 x 8).......................................................................................................
Repossessed merchandise ....................................................................................................
Cost of goods available for sale ...........................................................................................
Less Inventory, December 31
Number of units on hand ...........................................................................................
Multiply by average unit cost (Schedule 2) ...............................................................
Cost of goods sold on installment ........................................................................................

P 84,000
___2,520
86,520
1
P 7,210

___7,210
P 79,310

Schedule 2
Purchases during 2013 (P10,500 x 8) ..................................................................................
Add Repossessed merchandise ............................................................................................
Total .............. ..... .............................................................................................................
divide by Number of units (8 + 4) .......................................................................................
Average unit cost .............................................................................................................

P 84,000
___2,520
P 86,520
_____12
P 7,210

Schedule 3
Sales
2011 :
2012 :
2013 :

...................................................................
P15,000 x 10....................................................
P14,000 x 20....................................................
P14,300 x 7......................................................

2011

2012

2013

P150,000
P280,000
100,100

P725 x 4...........................................................
...................................................................

_______
150,000

_______
280,000

__2,900
103,000

Cost of goods sold:

Inventory, January 1 ........................................................
Purchases
...................................................................
Repossessed merchandise................................................
Cost of goods available for sale.......................................
Less Inventory, December 31..........................................
Cost of goods sold...........................................................
Gross profit ...... ..... ...................................................................
Gross profit rates.... ...................................................................

120,000
_____
120,000
_20,000
100,000
P 50,000
33-1/3%

20,000
162,000
_____
182,000
_____
182,000
P 98,000
35%

84,000
_2,520
86,520
_7,210
79,310
P23,690
23%

Sales

Schedule 4
Fair market value of repossessed merchandise ....................................................................
Less Unrecovered cost
Unpaid balance:
Original sales amount (P14,000 x 4) .................................................................
Collections prior to repossession.......................................................................
Total .... .............................................................................................................
Less Unrealized profit (P54,800 x 35%) ...................................................................
Loss on repossession............................................................................................................

P 2,520

P 56,000
__1,200
54,800
_19,180

_35,620
P33,100