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1. When the consideration receivable from an installment sale is discounted, the gross profit rate is
computed
a. based on the present value of the consideration receivable.
b. based on the undiscounted installment sale price
c. a or b
d. none of these

2. When the consideration receivable from an installment sale is discounted, realized gross profit is
computed
a. based on collections pertaining to the principal
b. based on the total collection during the period
c. a or b
d. none of these

3. Under the installment sales method, when merchandise previously sold is repossessed, the
repossessed merchandise is recorded at
a. fair value c. current cost
b. original cost d. any of these

4. For purposes of applying the installment sales method, “fair value” is

a. the appraised value of the repossessed property or traded-in merchandise
b. the estimated selling price of the repossessed property or traded-in merchandise less
reconditioning costs and normal profit margin, at date of repossession or date of trade-in.
c. a or b
d. none of these

5. Gain or loss on repossession is computed as

a. the fair value of the repossessed property less the sum of the balance in deferred gross profit
and the balance in the defaulted installment account receivable
b. the sum of the fair value of the repossessed property and the balance in the defaulted
installment account receivable less the balance in deferred gross profit
c. the difference between the fair value of the repossessed property and the balance in deferred
gross profit
d. the sum of the fair value of the repossessed property and balance in deferred gross profit less
the balance in the defaulted installment account receivable

6. Merchandise received as trade-in is recognized at

a. fair value c. current cost
b. original cost d. any of these

7. Under an installment sale where merchandise is received as “trade-in,”

a. the fair value of merchandise traded-in is considered as part of collections when determining
the realized gross profit in the year of sale.
b. the trade-in value of merchandise traded-in is considered as part of collections when
determining the realized gross profit in the year of sale.
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c. neither the fair value nor the trade in value affects the computation of realized gross profit.
d. none of these

8. The excess of the trade-in value over the fair value of a traded-in merchandise in a sale accounted
for under the installment sales method represents
a. over allowance c. no allowance
b. under allowance d. small allowance

9. Under the installment sales method, an “over allowance” is

a. treated as addition to the installment sale price when computing for the gross profit rate.
b. treated as reduction to the installment sale price when computing for the gross profit rate.
c. not accounted for
d. none of these

10. Under the cost recovery method,

a. the initial collections on the sale are treated as recovery of the cost of the inventory sold. Thus,
no gross profit or interest income is recognized until total collections from the sale equals the
cost of inventory sold.
b. the initial collections on the sale are treated as recovery of the cost of the inventory sold. Thus,
no gross profit is recognized until total collections from the sale equals the cost of inventory
sold. However, interest income may nonetheless be recognized.
c. a or b
d. none of these
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1. BUCOLIC RURAL Co. uses the installment method. Information on BUCOLIC’s transactions
during 20x1 and 20x2 is shown below:
20x1 20x2
Installment sales 2,000,000 2,400,000
Cost of sales 1,200,000 1,320,000
Gross profit 800,000 1,080,000
Cash collections from:
20x1 sales 800,000 400,000
20x2 sales 960,000

How much is the total realized gross profit in 20x2?

a. 160,000
b. 432,000
c. 592,000
d. 642,000

Use the following information for the next three questions:

INNOCUOUS HARMLESS Co. uses the installment method. On January 1, 20x3, INNOCUOUS
Co.’s records show the following balances:

Installment receivable - 20x1 800,000

Installment receivable - 20x2 2,400,000
Deferred gross profit - 20x1 176,000
Deferred gross profit - 20x2 576,000

On December 31, 20x3, INNOCUOUS Co.’s records show the following balances before adjustments
for realized gross profit:
Installment receivable - 20x1 -
Installment receivable - 20x2 960,000
Installment receivable - 20x3 2,400,000
Deferred gross profit - 20x1 176,000
Deferred gross profit - 20x2 576,000
Deferred gross profit - 20x3 1,500,000

Installment sales in 20x3 were made at 331/3 above cost.

2. How much is the installment sale in 20x3?

a. 4,836,000
b. 5,800,000
c. 6,000,000
d. 7,200,000

3. How much is the total cash collections in 20x3?

a. 5,840,000
b. 1,440,000
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c. 3,600,000
d. 5,640,000

4. How much is the total realized gross profit in 20x3?

a. 984,600
b. 1,241,200
c. 1,520,000
d. 1,421,600

5. DEMOTIC POPULAR Co. uses the installment method. The following information was taken
from the incomplete records of DEMOTIC Co.:
20x1 20x2 20x3
Installment sales 4,000,000 4,800,000 ?
Cost of sales ? ? ?
Gross profit ? ? ?
Gross profit rates ? ? 25%
Collections:
from 20x1 sales 2,000,000 1,200,000 800,000
from 20x2 sales 2,400,000 1,440,000
from 20x3 sales 3,600,000
Realized gross profit 440,000 ? 1,421,600

How much is the cost of sales in 20x2?

a. 2,840,000
b. 3,248,000
c. 3,648,000
d. 3,946,000

Use the following information for the next three questions:

THRALL SLAVE Co. uses the installment method. Information on installment sales in 20x1 and 20x2
is shown below:
20x1 20x2
Sales 400,000 640,000
Cost of sales 320,000 448,000
Gross profit rate 20% 30%
Installment receivable - 20x1 180,000 60,000
Installment receivable - 20x2 288,000

During 20x2, THRALL Co. repossessed a property which was sold in 20x1 for ₱40,000. Prior to
repossession, ₱10,000 were collected from the buyer. The estimated resale price of the repossessed
property was ₱34,000 after reconditioning costs of ₱6,000.

6. How much is the gain or loss on repossession?

a. 17,800
b. 6,200
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c. 12,800
d. 5,400

7. How much is the total realized gross profit in 20x2?

a. 123,600
b. 352,000
c. 117,400
d. 90,000

8. How much is the profit recognized in 20x2?

a. 123,600
b. 352,000
c. 117,400
d. 90,000

Use the following information for the next three questions:

Songing Co. sells household furniture both on cash and on installment basis. For each installment sale,
a contract is entered into whereby the following terms are stated:
a. A down payment of 25% of the installment selling price is required and the balance is payable
in 15 equal monthly installments.
b. Interest of 1% per month is charged on the unpaid cash sales price equivalent at each
installment.
c. The price on installment sale is equal to 110% of the cash sales price.

For accounting purposes, installment sales are recorded at contract price. Any unpaid balances on
defaulted contracts are charged ton uncollectible accounts expense. Sales of defaulted merchandise
are credited to uncollectible accounts expense. Interests are recorded in the period earned. For its first
year of operation ending December 31, 20x1, the books of the company showed the following:

Cash sales ₱378,000

Installment sales 794,970
Merchandise inventory, Jan. 1 174,180
Cash collections on installment contracts:
Down payment, including defaulted contract 198,750
Installment payments, including interest
of ₱27,758.52 (average of six
monthly installments on all
contracts, except on defaulted
contracts) 238,023

A contract amounting to ₱3,300 was defaulted after the payment of 3 installments.

9. The gross profit rate based on total sales at cash sales price equivalent is:
a. 33.75% c. 37.00%
b. 36.34% d. 40.88%
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10. The total interest earned for the first four months on the defaulted contract is:
a. 60.94 c. 72.07
b. 69.30 d. 80.85

11. The realized gross profit for the year 20x1 is:
a. 151,335.35 c. 249,674.52
b. 161,789.16 d. 291,355.96
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