Chapter 6 exercises solutions

CHAPTER 6
SUGGESTED ANSWERS
EXERCISES
Exercise 6-1
1.a. 2010 sales 2011 sales
Installment Accounts Recl, Jan. 1 P 400,000 P 200,000
Less Installment Accounts Recl, Dec. 31 100,000 40,000
Collections P 300,000 P 160,000
Gross profit rate (10,000/40,000; 4,400/20,000) 25%__ 22%__
Realized Gross Profit P 75,000 P 35,200
b. 2010 sales 2011 sales

Deferred Gross Profit, beg P 100,000 P 44,000
Less Deferred Gross Profit,end P100,000 x 25%, P40,000 x 22% 25,000 8,800
Realized Gross Profit P 75,000 P 35,200
2. Deferred Gross Profit, 2010 75,000

Deferred Gross Profit, 2011 35,200
Realized Gross Profit 110,200
Exercise 6-2
1. 2010 63/150 = 42%
2011 180/480 = 37.5%
2012 66 2/3 / 166 2/3 = 40%
2. 2010 P150,000 0 = P150,000

2011 P 480,000 P120,000 = 360,000
2012 P750,000 - P650,000 = 100,000
P610,000
*P300,000/40% = P750,000
3.
Deferred Gross Profit, 2010 P150,000 x 42% 63,000
Deferred Gross Profit, 2011 P360,000 x 37.5% 135,000
Deferred Gross Profit, 2012 P100,000) x 40% 40,000
Exercise 6-3
(G) (1) P50,000 - P11,000 P 39,000
(E) (2) P10,500 - (25% of P20,000) = P5,500/P25,000 22%
(F) (3) P50,000 x 22% P 11,000
(H) (4) P1,100/22% P 5,000
(B) (5) P80,000 x 75% P 60,000
(A) (6) P80,000 x 25% or P80,000 P20,000 P 20,000
(C) (7) P28,200 + P91,800 P120,000
(D) (8) P28,200/P120,000 23.5%
(9) 2010 = P10,000 x 22% = P 2,200
2011 = P50,000 x 25% = 12,500
2012 = P45,000 x 23.5% = 10,575 P 25,275
AA1 - Chapter 6 (2012 edition) page 117
Exercise 6-4
1. Deferred Gross Profit, 2010 4,500
2010 2011 2012

Deferred gross profit before adj. P 8,000 P26,000 P105,000
Deferred gross profit after adj.
(Inst. contract recl x GP rate) __3,500 _12,000 __36,000
Realized gross profit P 4,500 P14,000 P 69,000
2. Cash collections
2010 sales - P4,500 /35% P 12,857
2011 sales - p14,000/30% 46,667
2012 sales - P69,000/40% 172,500
Total P232,024
2010 2011 2012

Inst. Contract Receivable, beg/Inst. Sales P 22,857 P86,667 P262,500
Less Installment Contract Receivable, end 10,000 40,000 90,000
Collections P12,857 P46,667 P 172,500
Exercise 6-5
a. Installment Contracts Receivable 250,000
Installment Sales 250,000
b. Cash 120,000
Installment Contracts Receivable 120,000
c. Cost of Installment Sales 200,000

Inventory 200,000
50,000 / 250,000 = 20%
d. Inventory of Repossessed Merchandise 14,500

Deferred Gross Profit (P20,000 x 20%) 4,000
Loss on Repossession 1,500
e. Expenses 16,000
Cash 16,000
f. Installment Sales 250,000

Cost of Installment Sales 200,000
Deferred Gross Profit 50,000
g. Deferred Gross Profit 24,000

P120,000 x 20% = P 24,000
h. Realized Gross Profit 24,000

Expenses 16,000
Income Summary 6,500
Exercise 6-6
a. Installment Contracts Receivable 600,000

b. Cost of Installment Sales 405,000

Shipments on Installment Sales 405,000
c. Cash 360,000
d. Repossessed Merchandise 24,000

Deferred Gross Profit (P40,000 x 32.5%) 13,000
e. Installment Sales 600,000

195,000/600,000 = 32.5%
f. Deferred Gross Profit 117,000

P360,000 x 32.5% = P117,000
Exercise 6-7
Requirement 1
a. Cash 1,400
Interest Revenue 160
b. Repossessed Merchandise 2,000

Deferred Gross Profit (P4,000 x 40%) 1,600
Loss on Defaults 400
c. Deferred Gross Profit 496

Realized Gross Profit (P1,240 x 40%) 496
Requirement 2
Realized Gross Profit P496
Interest Revenue 170
Loss on Default (400)
P256
Requirement 3
a. Repossessed Merchandise 2,000

Loss on Defaults 3,600
Exercise 6-8
Repossessed Merchandise (P13,500/120%) 11,250

Deferred Gross Profit (P15,000 x 20%/120%) 2,500
Exercise 6-9
a. Trade-In Merchandise 180,000

Estimated resale price P280,000

Less: Reconditioning cost P30,000
Gross profit _70,000 __100,000
Estimated realizable value P 180,000
Selling price P720,000

Less Overallowance (P300,000 P180,000) 120,000
Adjusted selling price P600,000
b. Cost of Installment Sales 500,000

Automobiles 500,000
c. Cash 120,000
d. Installment Sales 600,000

P100,000/P600,000 = 16 2/3%
e. Deferred Gross Profit 50,000

(P180,000 + P120,000) x 16 2/3% = P50,000
Exercise 6 10
Correct entry
Allowance for Uncollectible Accounts 1,400
Deferred Gross Profit ( P 8,000 x 25/125 ) 1,600
Repossessed Merchandise 5,000
Installment Contract Receivable 8,000
Correcting Entry
Allowance for Uncollectible Accounts 6,600
Exercise 6-11
Requirement 1
Oct. 31 Cash 2,000,000
Installment Contracts Receivable 5,500,000
Real Estate 6,000,000
Deferred Gross Profit 1,500,000
GP rate = 15/75 = 20%
Nov. 30 Cash 115,000

Interest Revenue 55,000
5,500,000 x 1% = 55,000
Dec. 31 Cash 114,400

P5,500,000 P60,000 = P5,440,000 x 1% = P54,400
31 Deferred Gross Profit 424,000

P2,000,000 + P60,000 + P60,000 = P2,120,000 x 20%
Requirement 2
Oct. 31 Cash 2,000,000

Installment Contracts Receivable 5,500,000
Real Estate 6,000,000
GP rate = 15/75 = 20%
Nov. 30 Cash 60,000

P5,500,000 x 1% = P55,000
Dec. 31 Cash 60,000

P5,500,000 P5,000 = P5,495,000 x 1% x = P54,950

P2,000,000 + P5,000 + P5,050 = P2,010,050 x 20% = P402,010
Exercise 6-12
Recovery of cost Realized gross profit
a. 2012 P400,000 none
2013 25,000 P 75,000
2014 2018 100,000/year
b. 2012 none P400,000

2013 none P100,000
2014 P 25,000 P 75,000
2015 2018 P100,000/year none
c. 2012 P170,000 P230,000*

2013 2018 P 42,500 P 57,500**
*575/1,000 = 57.5% x P400,000 = P230,000
**P100,000 x 57.5% = P57,500
Exercise 6-13
1. Installment payment = P1,260,000/5.6502 = P223,000
2. Journal entries
Jan. 1 Cash 140,000
Notes Receivable (P223,000 x 10) 2,230,000
Real Estate Sales 1,400,000
Discount on Notes Receivable 970,000
1 Cost of Real Estate Sales 840,000

Inventory or Real Estate 840,000
1 Real Estate Sales 1,400,000

Cost of Real Estate Sales 840,000
GP rate = P560,000/P1,400,000 = 40%
Dec. 31 Cash 223,000

Notes Receivable 223,000
31 Discount on Notes Receivable 151,200

Interest Revenue 151, 200
(P2,230,000 P970,000) x 12% = P151,200

[P140,000 + (P223,000- P151,200)] x 40%
Exercise 6-14
Requirement 1
a. Land 13,440,000
Land Improvements 3,360,000
Cash 16,800,000
b. Cash 750,000
Installment Contract Receivable 4,250,000
Installment Sales 5,000,000
A 5 @ P400,000 = P2,000,000
B 8 @ P300,000 = 2,400,000
C 3 @ P200,000 = 600,000
Total P5,000,000
c. Cost of Installment Sales 3,000,000

Land 2,400,000
Land Improvements 600,000
Cost of sales = 16,800,000/28,000,000 = 60% x P5,000,000 = P3,000,000
Land = 13,440,000/16,800,000 = 80% x P3,000,000 = P2,400,000
Land imp. = 3,360,000/16,800,000 = 20% x P3,000,000 = P 600,000
d. Cash 1,400,000
Installment Contract Receivable 1,300,000
Requirement 2
a. Installment Sales 5,000,000
Cost of Installment Sales 3,000,000
GP rate = 2,000,000/5,000,000 = 40%
b. Deferred Gross Profit 820,000

(P750,000 + P1,300,000) x 40% = P820,000
Exercise 6-15
Req. 1
2009 Installment Accounts Receivable, 2009 4,700,000
Cost of Installment Sales P4,700,000 x 55% 2,585,000

Inventory 2,585,000
Cash 2,350,000
Installment Accounts Receivable, 2009 2,350,000

Deferred Gross Profit, 2009 2,115,000


Inventory 2,610,000
Cash 3,660,000
Installment Accounts Receivable, 2009 P4,700,000 x 30% 1,410,000


Realized Gross Profit 1,175,000
2009 - P2,585,000 P2,350,000 P1,410,000


Inventory 3,074,000
Cash 4,955,000
Installment Accounts Receivable, 2009 P4,700,000 x 15% 705,000


Deferred Gross Profit, 2010 P1,350,000 P360,000 990,000


Inventory 3,111,000
Cash 5,465,000
Installment Accounts Receivable, 2010 675,000


Deferred Gross Profit, 2011 P1,740,000 P174,000 1,566,000
Req. 2

Inventory 2,585,000
Cash 2,350,000

Deferred Gross Profit, 2009 P2,350,000 x 45% 1,057,500



Inventory 2,610,000
Cash 3,660,000

Deferred Gross Profit, 2009 P1,410,000 x 45% 634,500



Inventory 3,074,000
Cash 4,955,000
Installment Accounts Receivable, 2009 P4,700,000 x 15% 705,000




Inventory 3,111,000
Cash 5,465,000
Installment Accounts Receivable, 2010 675,000


3.
Gross Profit Recognized: 2009 2010 2011 2012
Full Accrual; P 2,115,000 P 1,890,000 P 2,726,000 P 2,989,000
Cost Recovery Method - 1,175,000 1,695,000 2,241,000
Installment Sales Method P1,057,500 P1,579,500 P2,247,250 P2,595,800
Exercise 6-16
2010 2011 2012
Installment sales P 400,000 P 475,000 P 525,000
Cost of Installment sales 248,000 280,250 341,250
Gross profit percentage 38% 41% 35%
Cash collections:
2010 Sales 128,000 232,000 28,000
2011 Sales 114,000 218,500
2012 Sales 162,750
Realized gross profit on installment sales - 112,000 80,250
COMPUTATIONS :
1 P 341,250 / . 65 = P 525,000
2 P 400,000 x . 62 = P 248,000
3 1 - (P 280,250 / P 475,000) = 41%

4 Gross profit recognized in 2012 P 80,250

All costs from 2010 sales are recovered; therefore,
Cash received equals gross profit 28,000
All cost from 2012 sales are not recovered; therefore,
Cash received goes to recovery of costs, no gross profit 0
Gross profit reported in 2012 from 2011 sales P 52,250
Costs of 2011 sales P 280,250
Costs recovered in 2011 114,000
Costs to be recovered in 2012 166,250
Cash received related to 2011 sales P 218,500
5 Cash collections in 2010 do not exceed costs of sales

Realized gross profit in 2010 = P 0
6 Cash collections from 2010 sales ( P 128,000 + 232,000 ) P 360,000

Costs of 2010 sales 248,000
Realized gross profit in 2011 P 112,000
Exercise 6-17
Requirement 1
2011
Jan. 1 Cash 1,500,000
Notes Receivable (2,197,100 x 10) 21,971,000
Real Estate Sales 15,000,000
Discount on Notes Receivable (23,471,000 15,000,000) 8,471,000
1 Cost of Real Estate Sales (240,000 x 30) 7,200,000

Inventory of Real Estate 7,200,000
Dec 31 Real Estate Sales 15,000,000

Cost of Real Estate Sales 7,200,000
Deferred Gross Profit - Real Estate Sales 7,800,000
GP rate = 7,800,000/15,000,000 = 52%
31 Cash 2,197,100
Notes Receivable 2,197,100
31 Discount on Notes Receivable 1,350,000

2012
Dec. 31 Cash 2,197,100
31 Discount on Notes Receivable 1,265,300

(P13,500,000 - P2,197,100 + P1,350,000) x 10%
Requirement 2
Date Cost Collection Unrecovered Cost
Jan. 01, 2011 7,200,000 1,500,000 5,700,000
Dec. 31, 2011 2,197,100 3,502,900
Dec. 31, 2012 2,197,100 1,305,800
Notes receivable (P21,971,000 - P2,197,100 - P2,197,100) P17,576,800

Less: Discount on notes receivable
(P8,471,000-P1,350,000- P1,265,300) P 5,855,700
Deferred gross profit (P7,800,000 + P1,350,000 + P1,265,300) 10,415,300 16,271,000
Unrecovered cost P 1,305,800
Exercise 6-18
Selling Price P 10,000,000
Cost of Land 4,000,000
Gross Profit P 6,000,000
Gross Profit rate ( 600 / 1,000 ) 60%
a) Full accrual method 2012 P 6,000,000

2013 2014 none
b) Installment method
Collections Cost Recovery Gross Profit
2012 P 4,000,000 P 1,600,000 P 2,400,000
2013 3,000,000 1,200,000 1,800,000
2014 ___3,000,000 ___1,200,000 ___1,800,000
P10,000,000 P 4,000,000 P 6,000,000
c) Cost Recovery method

Collections Cost Recovery Gross Profit
2012 P 4,000,000 P 4,000,000 P -
2013 3,000,000 - 3,000,000
2014 ___3,000,000 ____-___ 3,000,000
P 10,000,000 P 4,000,000 P6,000,000
PROBLEMS
Problem 6-1
1. 2011 - (P12,000* + P228,000) (P240,000 + P520,000 + P40,000) 30%
2012 - (P1,500,000 - P975,000) P1,500,000 35%
*P40,000 P24,000 P4,000 = P12,000
2.a. Installment Sales 1,500,000

b. Deferred Gross Profit, 2011 (P520,000 x 30%) 156,000

Deferred Gross Profit, 2012 (P740,000 x 35%) 259,000
c. Sales 2,120,000
Cost of Sales 1,650,000
Gain or Loss on Repossession 4,000
Selling and Administrative Expenses 660,000
d. Income Tax 66,300

Income Tax Payable 66,300
e. Income Summary 66,300

Income Tax 66,300
f. Income Summary 154,700

Retained Earnings 154,700
Requirement 3
Excellent Co.
Income Statement
For the Year Ended December 31, 2012
Sales P 2,120,000
Cost of Sales _1,650,000
Gross Profit on Regular Sales P 470,000
Realized Gross Profit on Installment Sales __415,000
Total Realized Gross Profit P 885,000
Less Loss on Repossession ____4,000
Realized Gross Profit after Loss on Repossession P 881,000
Selling and Administrative Expenses __660,000
Net Income before Income Tax P 221,000
Income Tax 66,300
Net Income P154,700
Problem 6-2
Requirement 1 Computation of gross profit rates
2010 sales P22,500/P50,0000 45%

2011 sales P96,000/P240,000 40%
2012 sales 100% - (P310,000/P500,000) 38%
Requirement 2 Income Statement

Reliance Sales Corp.
Income Statement
Regular Installment
Sales Sales Total
Sales P 192,000 P 500,000 P 692,000
Cost of Sales:
Inventory, January 1 P 30,000
Purchases 455,000
Repossessed Mdse. __10,000
Cost of Goods Available for Sale P495,000
Less Inventory, Dec. 31 __35,000 150,000 310,000 460,000
Gross Profit P 42,000 P 190,000 P 232,000
Less Deferred Gross Profit, including DGP on
repossessed merchandise ________ 32,300 32,300
Realized Gross Profit on 2012 sales P 42,000 P 157,700 P 199,700
Add Realized Gross Profit on 2010 & 2011 sales 100,650
Total P 300,350
Less Loss on Repossession 13,000-(3,600+4,000+1,900) 3,500
Realized gross profit after loss on Repossession P 296,850
Operating Expenses 300,000
Net Loss P 3,150
Analysis of gross profit on installment sales:

2010 2011 2012
Installment sales P500,000
Installment contracts recl, beginning P 50,000 P240,000
Installment contracts recl, end ( 5,000) ( 20,000) (80,000)
Defaulted installment contracts recl ( 8,000) ( 10,000) (5,000)
Collections P 37,000 P210,000 P415,000
Gross profit rate 45% 40% 38%
Realized gross profit P 16,650 P84,000 P157,700
Deferred gross profit P 2,250 P 8,000 P 30,400

Reliance Corp.
Statement of Financial Position
December 31, 2012
Assets Liabilities & Shareholders Equity

Cash P 25,000 Accounts Payable P 75,000
Inst. Contracts Recl, 2012 80,000 Deferred Gross Profit, 2012 30,400
Accounts Recl 40,000 Ordinary Share Capital 100,000
Inventory 35,000 Retained Earnings 41,350
Other Assets 52,000 ________
Total Liabilities &
Total Assets P257,000 Shareolders Equity P257,000
Requirement 3

Problem 6-3
1. Schedule of Cost of Goods Sold

Inventory, January 1 P 240,000
Purchases, including freight-in 1,250,000
Cost of Goods Available for Sale P1,560,000
Less Inventory, December 31 260,000
Cost of Goods Sold P1,300,000
2. Schedule of Allocation of Cost of Goods Sold

Type of Amount of Amount Based Allocation of
Sale Sales on Cash Sales Ratio CGS
Cash P 300,000 P 300,000 3/20 P 195,000
Charge 600,000 500,000 5/20 325,000
Installment 1,500,000 1,200,000 12/20 780,000
P2,400,000 P2,000,000 P1,300,000
3. Analysis of gross profit on installment sales:

2010 2011 2012
Installment sales P1,500,000
Installment contracts recl, beginning P400,000* P800,000*
Installment contracts recl, end ( 110,000) ( 450,000) (960,000)
Defaulted installment contracts recl - ( 50,000) (140,000)
Collections P 290,000 P300,000 P400,000
Gross profit rate 40% 35% 48%**
Realized gross profit P116,000 P105,000 P192,000
Deferred gross profit P 44,000 P 157,500 P 460,800

*P160,000/40% = P400,000; P280,000/35% = P800,000
**1 (780/1500) = 48%
4.
Installment Contracts Receivable, 2011 50,000
Installment Contracts Receivable, 2012 140,000
5.
Fuji Products
Income Statement
Cash Charge Installment

Sales Sales Sales Total
Sales P300,000 P600,000 P 1,500,000 P2,400,000
Cost of Sales 195,000 325,000 780,000 1,300,000
Gross Profit P105,000 P275,000 P 720,000 P1,100,000
Less Deferred Gross Profit, 2012 sales including defaults 528,000 528,000
Realized Gross Profit on 2012 sales P105,000 P275,000 P 192,000 P 572,000
Add Realized Gross Profit on 2010 and 2011 sales 221,000
Total Realized Gross Profit P 793,000
Less Loss on Repossession 35,300
Realized Gross Profit after loss on repossession P 757,700
Operating Expenses, including bad debts 465,000
Net Profit before Income Tax P 292,700
Income Tax 87,810
Net Profit P 204,890
Problem 6-4
1. Computation of gross profit rates
2010 sales 160,000/400,000 40%
2011 sales 167,200/440,000 38%
2012 sales 163,800/420,000 39%
2. Adjusting entries
a. Installment Sales 420,000
b. Deferred Gross Profit, 2010 27,200

2010 - (P110,000 P28,000 - P9,000 - P5,000) x 40% = P27,200
2011 - (P250,000 P92,000 - P2,800) x 38% = P58,976
2012 - (P420,000 P238,000) x 39% = P70,980
3. Correcting entries
a. Deferred Gross Profit, 2010 (9,000 x 40%) 3,600
Deferred Gross Profit, 2011 (2,800 x 38%) 1,064
b. Inventory of Repossessed Merchandise(4,000 - 400 - 600) 3,000

Deferred Gross Profit, 2010 (5,000 x 40%) 2,000
The indicated gain of P600 is ignored and deducted from the
market value of the repossessed merchandise.
4. Closing entries
a. Realized Gross Profit 157,156
b. Income Tax 18,846

Income Tax Payable 18,846
c. Income Summary 18,846

Income Tax 18,846
d. Income Summary 43,974

Retained Earnings 43,974
Problem 6-5
2011
(1) Sept. 30 Cash 48,000
Piano 300,000
60/160 = 37.5%
(2) Oct. 31 Cash 48,000

Installment Revenue 2,160
Nov. 30 Cash 48,000

Dec. 31 Cash 48,000

Principal Principal
Date Collection Interest Reduction Balance
480,000
Sept. 30 48,000 48,000 432,000
Oct. 31 48,000 432,000 x .005 = 2,160 45,840 386,160
Nov. 30 48,000 386,160 x .005 = 1,931 46,069 340,091
Dec. 31 48,000 340,091 x .005 = 1,700 46,300 293,791
(3) Dec. 31 Deferred Gross Profit 69,828

48,000 + 45,840 +46,069 + 46,300 = 186,209 x 37.5% = 69,828
2012
(4) Feb. Repossessed Piano 168,000
Deferred Gross Profit P293,791 x 37.5% 110,172
Problem 6-6
(1) Sales 1,260,000 + (2,650,000 1.06) P3,760,000
Cost of Sales:
Inventory, beginning P 580,600
Purchases 2,093,000
P2,673,600
Less: Inventory end 333,000 2,340,600
Gross Profit P1,419,400
3,760,000
Gross Profit Rate (1,419,400 / 3,760,000 ) 37.75%
(2) Equivalent Cash Contract Interest Cash

Inst. Sales Price Balance Revenue Collection
Time of 10,000 10,600 - 2,650
Sale (10,600 1.06) (10,600 x 25%)
1 7,350 7,950 73.50 530
(10,000 - 2,650) (10,600 - 2,650) (7,350 x 1%) (7,950 15)
2 6,893.50 7,420 68.93 530
(7,350 - (530 - 73.50) (7,950 -530) (6,893.50 x 1%) (7,950 15)
3 6,432.43 6,890 64.32 530
(6,893.50 -(530 - 68.93) (7,420 - 530) (6,432.43x 1%) (7,950 15)
4 5,966.75 6,360 59.67 530
(6,432.43-(530 - 64.32) (6,890 - 530) (5,966.75 x 1%) (7,950 15)
5 5,446.42 5,830 54.96 530
(5,966.75- (530 - 59.67) (6,360 -530) (5,496.42 x 1%) (7,950 15)
6 5,021.38 5,300 50.21 530
(5,496.42- (530 - 54.96) (5,830 -530) (5,021.38 1%) (7,950 15)
(3) Installment Sales Price P10,600.00

Less: Installment on contract 600.00
10,600 - (10,600 1.06)
Installment sales at cash sales price P10,000.00
Less: Downpayment P 2,650.00
Collections P 1,590.00
Less interest 206.75 1,383.25 4,033.25
Balance P5,966.75
Less: DGP 5,966.75 x 37.75% P 2,252.45
Repossessed Sales 2,300.00
Repossessed Inventory 1,800.00 6,352.45
Net gain on defaults P 385.70
(4) Cash Sales P1,260,000 x 37.75% P 475,650.00

Installment Sales:
Downpayment P2,650,000 x = P662,500 x 37.75% 250,093.75
Installments on defaults P1,383.25 x 37.75% 522.20
Installment Collections P793,410 P1,590 defaults P791,820.00
Less Interest (P2,650,000 - P10,600) /1.06 x .03716 92,528.40
Balance P699,291.60
x 37.75% 263,982.60
Realized Gross Profit P990,248.60
Problem 6-7
1. Total installment sales P3,450,000
Less Installment Receivable - Dec. 31 1,594,600
Total Collections in Sales P1,855,400
2. Collections P1,855,400
GPR:
Total Selling price P9,500,000
Total Cost 5,225,000
GP P4,275,000
Total sales 9,500,000 45%__
RGP P 834,930
3. Installment Receivable - Dec. 31 P1,594,600

GPR x 45%_
Unrealized GP P 717,570
4. Realized gross profit P 834,930

Interest Income 520,300
Operating Expenses (682,130)
Net Income before Income Tax P 673,100
Income Tax 201,930
Net Income P471,170
Problem 6-8
Sales (Schedule 1) P 8,060,000
Cost of Sales (43% of Sales, Schedule 2) 3,465,800
Gross Profit P 4,594,200
Less Sales Commission 221,000
Gross profit excluding Commission P 4,373,200
Less DGP 4,373,200 / 8,060,000 x 5,370,000 2,913,658
Realized gross profit P 1,459,542
Expenses:
Advertising P730,000
Sales Managers Salaries 900,000
Gen. Operating Expenses (2,360,000 x 1/ 4 ) 590,000 2,220,000
Net loss P 760,458
Schedule 1 Sales
Total Sales Cash Installment
Price Received NR Balance
A 26 @ 150,000 P3,900,000 P1,650,000 2,250,000
B 32 @ 100,000 3,200,000 800,000 2,400,000
C 12 @ 80,000 960,000 240,000 720,000
P8,060,000 P2,690,000 5,370,000
Schedule 2 - Cost of Sales Rate

Unit Total
No. of lots Sales Price Sales Value
A 80 150,000 P12,000,000
B 100 100,000 10,000,000
C 130 80,000 10,400,000
310 P32,400,000
Cost of Land P 4,800,000

Legal fees, etc. 600,000
Grading 2,250,000
Water & Sewerage 1,849,000
Paving expenses 2,663,000
General operating expenses (2,360,000 x 3/4) 1,770,000
Total cost P13,932,000
Total sales value 32,400.000
Cost of sales rate 43%
Problem 6 - 9
2011 Inventory 45,200
Cash 45,200
Notes Receivable, 2011 P32,000 +P 62,000 + P 3,600 97,600

Discount on Notes Receivable, 2011 P7,167 +P 3,600 10,767
Cost of Installment Sales P45,200 - P2,000 43,200

Inventory 43,200
Cash 35,600
Notes Receivable, 2011 P32,000 + P3,600 35,600
Discount on Notes Receivable, 2011 3,600



43,633/86,833 = 50.25% x 32,000
2012 Inventory 52,020

Cash 52,020
Notes Receivable, 2012 P160,000 + P50,000 + P5,500 - P26,000 89,500

Discount on Notes Receivable, 2012 8,043 + [5,500 - (7,167 - 5,579] 11,955
Cost of Installment Sales P52,020 - P8,000 44,020

Inventory 44,020
Cash 55,500
Notes Receivable, 2012 P89,500 - P60,000 29,500
Notes Receivable, 2011 P62,000 - P36,000 26,000
Discount on Notes Receivable, 2012 P5,500 - P1,588 3,912

Discount on Notes Receivable, 2011 P7,167 - P5,579 1,588

Deferred Gross Profit, 2012 P29,500 (P3,912 x 43.23%) 11,062

Deferred Gross Profit, 2011 P26,000 - P1,588 = P24,412 x 50.22%) 11,267
33,525/77,545 = 43.23%
Problem 6-10
2009
Jan. 1 Cash 2,000,000
Idle Plant 5,000,000
2010
July 1 Cash 1,900,000
2011
Dec. 31 Cash 2,250,000
Interest. Revenue 1,150,000
P2,250,000 - (P5,000,000 - P2,000,000 - P1,900,000) = P1,150,000
2012
Feb. 1 Cash 2,825,000
Feb. 1 Deferred Gross Profit (2,000,000 + 900,000 - 400,000) 2,500,000

Gain on Sale of Idle Plant 2,000,000
(900,000 + 750,000 + 325,000 = 1,975,000 - 1,150,000 - 325,000 = 500,000)
MULTIPLE CHOICE
1. B 2012 2011 2010

Inst. Sales
8,765,625 68% P12,890,625
Inst. Rec. beg. P8,387,500 P1,512,500
Inst. Rec. end (9,728,125) (3,025,000) __________
Collections P 3,162,500 P5,362,500 P1,512,500 P10,037,500
GPR x 32% x 30% x 28%
P 1,012,000 P1,608,750 P 423,500 P3,044,250
2 D
3 B
4 C P9,728,125 X 32% = P3,113,000
5 D 2012 - P90,000 x 1/3 P22,500

2011 - P16250 x 30/130 3,750
P26,250
6 B Deferred gross profit before adjustment P38,000

Deferred gross profit after adjustment
2011 - P16,250 x 30/130 P 3,750
2012 - P90,000 x 33 1/3 /133 1/3 22,500 26,250
Realized gross profit P11,750
Operating expenses 1,500
Net income P10,250
7 A Downpayment P545,000 x .2 P109,000

Inst. Collections P545,000 x .8 x .40 174,400
Collections in year 1 on Year 1 Inst. Sales P283,400
x 35/135
Realized gross profit for Year 1 P 73,474
8 A Installment sales - Year 2 P785,000

Less Collections in Year 2
DP P785,000 x .20 P157,000
Installment collection P785,000 x .80 x .40 251,200 408,200
Balance, end of Year 2 P376,800
x 35/135
Unrealized GP on Year 2 installment sales at the end of Year 2 P 97,689
9 B Inst. Accts. Rec., end of year 3

On year 3 installment sales P968,000 x .80 x .60 P464,640
On Year 2 installment sales P785,000 x .80 x .25 157,000
Total installment accounts receivable, end of Year 3 P621,640
10 A Total installment accounts receivable, end of Year 3 P621,640

x 35/135
Total unrealized gross profit at end of Year 3 P161,166
11 A
12 A 2011 - 100% - 31,250/62,500 = 50% x P25,000 P12,500

2012 - 100% - 45,000/100,000 = 55% x P62,500 34,375
Total P46,875
13 B Sales regular P187,500

Cost of sales regular 112,500
Gross profit regular P 75,000
Realized gross profit 46,875
Total gross profit P121,875
Selling expenses 31,250
Profit P 90,625
14 C P100,000 P62,500 = P37,500 x 55% = P20,625
15 D P610,750 x 60% P366,450
16 D P306,520 x 40% P122,608
17 B 2010 sales - P17,400 x 36% P 6,264

2011 sales - (P205,400 - P200 - P25,800) x 39% 69,966
Total P76,230
18 B Selling price P 200

Cost P200 x 61% 122
Gain from sale of repossessed merchandise P 78
19 B (P344,460 - P67,440 - P2,200) x 34% P93,438.80
20 B Market value of repossessed ref P1,700 x 63% P1,071

Unrecovered cost P2,200 x 66% 1,452
Loss on repossession P 381
21 C 2010 sales - 100% - (247/380) = 35% x P24,020 P 8,407.00

2011 sales 93,438.80
2012 sales - 100% - (379,260/602,000 = 37%
37% x (P602,000-P410,090) 71,006.70
Total P172,852.50
22 B P344,460 x 34% = P117,116
23 C ( P100,000 - P12,500 - P6,250) x 50% P40,625

24 B Installment sales P 375,000

Invty. Beg. P 62,500
Purchases 435,000
Repossessions 2,500
Mdse. Avail for sale 500,000
Less Invty. End 75,000
CGS 425,000
Cost of Regular sale ( 312,500 x 70% ) 218,750
Gross profit on Installment sales 206,250
Gross profit rate on Installment sales (168,750/375,000) 45%
25 B ( 375,000 - 150,000) x 45% P101,250
26 A (3,750 - (6,250 x 50%) P625 loss
27 B 2010 sales - P108,750 x 25% P27,187.50

2011 sales - P120,000 x 27.5% 33,000.00
2012 sales - P 93,750 x 28% 26,250.00
Total P86,437.50
28 A Value assigned to repossessed merchandise:

2010 sales P 9,000
2011 sales 13,500 P22,500
Unrecovered cost
2010 sales - P22,500 x 75% P16,875
2011 sales - P24,000 x 72.5% 17,400 34,275
Loss on repossession P11,775
29 D 2010 360,00067,500112,500108,75018,750-22,500= P30,000 x 25% = P 7,500

2011 375,000 -71,250 -120,000 -24,000 = P159,750 x 27.5% = 43,931
2012 450,000 - 93,750 = P356,250 x 28% = 99,750
30 A 2010 P 24,000
2011 P300,000 P60,000 P10,000 230,000
2012 P480,000 P320,000 5,000 155,000
P409,000
31 D 2010 sales - P24,000 x 39% P 9,360

2011 sales - (P300,000 - P60,000 - P10,000) x 42% 96,600
2008 sales - (P480,000 - P320,000 - P5,000) x 40% 62,000
Total P167,960
32 C 2011 sales - P4,500 - (P10,000 x 58%) P(1,300)

2012 sales - P3,500 - (P5,000 x 60%) 500
Net gain (loss) on repossession P (800)
33 A P360,000 x 33 1/3% P120,000
34 B Loss = P8,000 - (P15,000 x 60%) P1,000
35 B (P800,000 - P250,000 - P300,000 - P15,000) x 40% P94,000
36 D (P75,810/42%) + P75,810 P256,310
37 C 2010 sales - P35,800 x 32.26% P 11,550

2011 sales - (P155,000 - P42,000) x 40% 45,200
2012 sales - (P256,310 - P100,500) x 42/142 46,085
Total P102,835
38 B (P120,000 - P15,000 - P7,750) x 45% P43,762.50
39 C Inventory, Dec. 31, 2011 P 70,000

Purchases 555,000
Repossessions 3,000
Cost of goods available for sale P628,000
Less Inventory, Dec. 31, 2012 95,000
Cost of goods sold P533,000
Less Cost of goods sold on regular sales P385,000 x 70% 269,500
Cost of installment sales P263,500
Gross profit rate on installment sales [100% - (263,500/425,000)] 38%
40 A Realized gross profit (P425,000 - P200,000) x 38% P85,500
41 B (7,750 x 55%) - 3,000 P1,262.50
42 B Cash sales P 90,000

Charge sales (P180,000/120%) 150,000
Installment sales (P446,400/124%) 360,000
Total sales - cash basis P600,000
43 A Inventory, beginning P52,500

Delivered cost of purchases 393,000
Repossessed merchandise 15,000
Cost of goods available for sale P460,500
Less Inventory, end 70,500
Cost of goods sold P390,000
Cost of installment sales - P390,000 x 360/600 P234,000

44 B 2010 2011 2012

Installment recl, beg P 74,000 P123,000
Installment sales P446,400
Installment recl, end ( 15,000) ( 45,000) ( 270,000)
Defaulted recl ( 18,000) ( 21,000) ---___
Collections P 41,000 P 57,000 P176,400
45 A Sales price of Article A P400,000

Less Overvaluation on trade -in
Sales price P110,000
Reconditioning cost ( 8,000)
Normal profit ( 22,000)
Market value of trade-in P 80,000
Allowed trade-in value 120,000 40,000
Adjusted sales price P360,000
Cost of Article A 270,000
Gross profit P 90,000
Gross profit rate 25%
46 A Realized GP - (P80,000 + P40,000) x 25% P30,000
47 C Inst. recl balance, Dec. 31, 2011 P360,000 - P120,000 P240,000

Installment payment, Jan. 1 - Mar. 1 P20,000 x 3 60,000
Inst. recl balance, April 1 P180,000
Cost percentage x 75%
Unrecovered cost P135,000
Market value of repossessed mdse. P135,000 - P8,000 - P27,000 100,000
Loss on repossession P 35,000
48 C Expected loss (125,000 x 4%*) P5,000

Less: Loss on default 2012 P1,500
Recovery from sale of repossessed merchandise 175 1,325
Balance of allowance for defaulted contracts; Dec. 31, 2012 P3,675
*Loss on default in 2011 on 2011 sales P 250
Loss on default in 2012 on 2011 sales 3,750 P 4,000
Recovery on sale of repossession in 2012 P 800
Repossessed Merchandise on hand 200 1,000
Expected loss P 3,000
Sales
P75,000
Rate of loss as a % of sales 4%
49 B Inst. contract recl beg. P31,500

Less: Inst. Contract recl, end P2,000
Inst. Contract recl written off 3,750 5,750
Collections P25,750
Gross profit rate x 40%
Realized gross profit P10,300
50 B Lot A (791,086.20 x 30%) P 237,325.80

Lot B (973,333.30 x 25%) 243,333.30
Lot C and House (P2,080,000 x 40%) 832,000.00
Realized gross profit P1,312,659.10
Schedule of Collection Principal Balance

Lot A
3/31 - Initial balance P1,714,280.00
3/31 - Down payment P514,280.00 1,200,000.00
6/30 - P120,000 - (P1,200,000 x 2.5%) 90,000.00 1,110,000.00
9/30 - P120,000 - (P1,110,000 x 2.5%) 92,250.00 1,017,750.00
12/31- P120,000 - (P1,017,750 x 2.5%) 94,556.20 923,193.80
P791,086.20
Lot B
10/31 Initial balance P2,400,000.00
10/31 Down payment P800,000.00 160,000
12/31 P200,000 (P1,600,000 x 1.667%) 173,330.30 1,426,666.70
P973,333.30
Lot C
6/30 Initial balance P4,200,000
6/30 Down payment P1,800,000.00 2,400,000
12/31- P400,000 (P2,400,000 x 5%) 280,000.00 2,120,000
P2,080,000.00
Allocation of Cost & GP rates:
Cost SP GP %
Lot A P1,600,000 x 6/8 P1,200,000 P1,714,280 P514,280 35%
Lot B - P2,400,000 x 6/8 1,800,000 2,400,000 600,000 25%
Lot C: from Lot A P400,000
from Lot B P600,000
House - P1,520,000 2,520,000 4,200,000 1,680,000 40%
51 A Unpaid balance upon default P2,120,000

Less: DGP P2,120,000 x 40% 848,000
Unrecovered cost P1,272,000
Market value P2,520,000 (P1,520,000 20) 2,444,000
Gain on repossession P1,172,000
52 D 8,000,000 (8,000,000 x 20%) = 6,400,000 x 3% = P192,000.00

6,400,000 (642,957.30 192,000) x 3% 178,471.30
Collections to be applied on interest P370,471.30
53 B Downpayment P1,600,000.00
1st inst. 642,957.30 - 192,000 450,957.30
2nd inst. 642,957.30 - 192,000 464,486.00
Total collections P 2,515,443.30
[P8,000,000 (P2,500,000 + P3,560,000)]/P8,000,000 x 24.25%
Realized gross profit P 609,995.00

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CHAPTER 6

b. 2010 sales 2011 sales

2. Deferred Gross Profit, 2010 75,000

2. 2010 P150,000 0 = P150,000

2010 2011 2012

2010 2011 2012

c. Cost of Installment Sales 200,000

d. Inventory of Repossessed Merchandise 14,500

f. Installment Sales 250,000

g. Deferred Gross Profit 24,000

h. Realized Gross Profit 24,000

a. Installment Contracts Receivable 600,000

b. Cost of Installment Sales 405,000

d. Repossessed Merchandise 24,000

e. Installment Sales 600,000

f. Deferred Gross Profit 117,000

b. Repossessed Merchandise 2,000

c. Deferred Gross Profit 496

a. Repossessed Merchandise 2,000

Repossessed Merchandise (P13,500/120%) 11,250

a. Trade-In Merchandise 180,000

Estimated resale price P280,000

Selling price P720,000

b. Cost of Installment Sales 500,000

d. Installment Sales 600,000

e. Deferred Gross Profit 50,000

Nov. 30 Cash 115,000

Dec. 31 Cash 114,400

31 Deferred Gross Profit 424,000

Oct. 31 Cash 2,000,000

Nov. 30 Cash 60,000

Dec. 31 Cash 60,000

31 Deferred Gross Profit 402,010

b. 2012 none P400,000

c. 2012 P170,000 P230,000*

1 Cost of Real Estate Sales 840,000

1 Real Estate Sales 1,400,000

Dec. 31 Cash 223,000

31 Discount on Notes Receivable 151,200

31 Deferred Gross Profit 84,720

c. Cost of Installment Sales 3,000,000

b. Deferred Gross Profit 820,000

Cost of Installment Sales P4,700,000 x 55% 2,585,000

Installment Sales 4,700,000

2010 Installment Accounts Receivable, 2010 4,500,000

Cost of Installment Sales P4,500,000 x 58% 2,610,000

Installment Sales 4,500,000

Deferred Gross Profit, 2009 1,175,000

2011 Installment Accounts Receivable, 2011 5,800,000

Cost of Installment Sales P5,800,000 x 53% 3,074,000

Installment Sales 5,800,000

Deferred Gross Profit, 2009 705,000

2012 Installment Accounts Receivable, 2012 6,100,000

Cost of Installment Sales P6,100,000 x 51% 3,111,000

Installment Sales 6,100,000

Deferred Gross Profit, 2010 675,000

Cost of Installment Sales P4,700,000 x 55% 2,585,000

Installment Sales 4,700,000

Deferred Gross Profit, 2009 P2,350,000 x 45% 1,057,500

2010 Installment Accounts Receivable, 2010 4,500,000

Cost of Installment Sales P4,500,000 x 58% 2,610,000

Installment Sales 4,500,000

Deferred Gross Profit, 2009 P1,410,000 x 45% 634,500