Multiplying the selling price the gross profit rate

CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN

PROBLEM 1: TRUE OR FALSE
1. Under the “installment sales method,” realized gross profit is equal to gross profit rate multiplied by the collection on sale. TRUE
2. Under the “installment sales method,” the deferred gross profit at any given point of time may be determined by multiplying the balance of receivable by the gross profit rate. TRUE
Fact Pattern:
Monkey Co. uses the “installment sales method.” Monkey buys a banana for P2 and sells it for P10.

d. apply the “installment sales method.”

2. Which of the following methods of recognizing revenue is in accordance with the principles of the PFRSs?

CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN

4. Merchandise received as trade-ins is recognized at

Installment sales method

1. Lunch Co. uses the “installment sales method.” Lunch Co.’s records show the following balances:

2. Dinner Co. uses the “installment sale method.” Dinner Co.’s records show the following balances:

Installment receivable – beg. - Deferred gross profit (before year-end adjustment) 200,000 Collections during the year 400,000 Gross profit rate based on sales 20%

Silent Night Co. uses the “installment sales method.” Silent Night sells an inventory costing P750,000 for P1,000,000.

3. If Silent Night Co. reports deferred gross profit of P200,000 at year-end, how much are the total collections during the year?

6. If Silent Night Co. recognizes realized gross profit of P180,000, how much is the ending balance of the receivable?

CHAPTER 10 INSTALLMENT SALES METHOD - MILLAN

Use the following information for the next three questions”

Auto Co. uses the “installment sales method.” Auto Co.’s records show the following:

11. How much are the total collections in 20x3?

Repossession

Use the following information for the next two questions:

a. 1,927 c. 2,124
b. 1,867 d. 1,678

Use the following information for the next two questions:

15. How much was the total realized gross profit in 20x3?

12. The journal entry to record the sale, including the traded-in merchandise, includes a a. debit to “under allowance” of P4,000.

b. debit to “over allowance” of P4,000.

Cost recovery
19. Sound Co. uses the “cost recovery method.” The records of Sound Co. show the following information on a sale made on December 31, 20x1:
Carrying amount of goods sold 4,000,000
Consideration from sale:

20. Cold Breeze Co. uses the “cost recovery method.” Relevant information follows:

Cash collections:

CHAPTER 9 | INSTALLEMENT | GUERRERO

4. Under the gross profit realization method, first collections are regarded as a. Expenses
b. Revenue
c. Cost recovery
d. Return of investment

5. Under this method, cash collection is regarded as a partial recovery of cost and a partial realization of profit
a. Cost recovery method
b. Gross profit realization method
c. Installment method
d. None of the above

c. Fair value after reconditioning cost
d. Fair value before reconditioning cost

9. Installment accounts receivable account is classified in the balance sheet under: a. Current asset
b. Fixed asset
c. Other asset
d. Non-current set

What is the realized gross profit on sales for 2013?
a. P1,350,000
b. P1,125,000
c. P 810,000
d. P 675,000

9-2: Gross profit rates of Batman Company were 35%, 33% and 30% of sales for 2011, 2012 and 2013, respectively. The following account balances are available at the end of 2013:

CHAPTER 9 | INSTALLEMENT | GUERRERO

9-3: The following information are obtained from the books of accounts of Robin, Inc. on June 30, 2013:

The total collections during the year including interest and financing charges of P100,000 is P500,000. What is the net income of BMW Corporation for the year ended December 31, 2013?

a. P 220,000
b. P 140,000
e. P 150,000
d. P 120,000

In its December 31, 2013, what amount should Casablanca, Inc. report as deferred gross profit?

CHAPTER 9 | INSTALLEMENT | GUERRERO

9-8: In July, 2012, Sta. Lucia Company who uses the installment method of accounting sold land costing P90,000 for P240,000, receiving P35,000 cash as down payment and a mortgage note for the balance payable in monthly installments. Installment received in 2012 reduced the principal of the note to a balance of P200,000. The buyer defaulted on the note at the beginning of 2013 and the property was repossessed. The property had an appraised value of P165,000 at the time of repossession. The realized gross profit in 2012 and the gain (loss) on repossession in 2013 amounted to:

9-10: Lexus Company, which began operations on January 3, 2012, appropriately used the installment method of revenue recognition. The following information pertains to Lexus Company's operations for 2012 and 2013:

Accounts written off:

a. P 180,000
b. P 153,000
c. P 270,000
d. P 225,000

9-12: SM Corporation started operations on January 2, 2012 selling home appliances and furniture on installment basis. For 2012 and 2013, the following data represented operational details:

CHAPTER 9 | INSTALLEMENT | GUERRERO

b. P218,400
c. P192,000
d. P275,000

9-15: ACA Video Company sells betamax equipment. It maintains its accounting records on a calendar year basis. On October 1, 2012, ACA Video Company sold a television set to Mr. Santiago. The cost of the set was P18,000, and the set was sold for P24,000. A down-payment of P6,000 was received along with a contract calling for the subsequent payment of P1,000 on the first day of each month starting on the following month. No interest was added to the contract. Mr. Santiago paid the monthly installments promptly on November 1 and December 1 in 2012. He also made seven installment payments in 2013 after which he defaulted on the contract. The set was then repossessed on November 1, 2013. Assuming the repossessed set has a fair value of P4,000, what is the gain (loss)
on repossession to be recognized?

a. P (2,750)
b. P 2,750
c. P 750
d. P1,500

9-17: The books of Concepcion, Inc. show the following balances on December 31, 2013:

Accounts Receivable 627,500 Deferred Gross Profit (before adjustment) 76,000

January 7 December 31 Installment receivable:

Sales price:

The mortgage payable is to be paid in nine annual installments of P600,000 beginning December 31, 2013 plus interest of 10 percent. The December 31, 2013 installment was paid as scheduled, together with interest of P540,000. Filstate Corporation uses the cost recovery method of revenue recognition.

What amount of income should Filstate Corporation recognize in 2013 from the sale of real estate?

Collections on accounts from:

What is the net income for the year ended December 31, 2013? a. 78, 125
b. 93, 750
c. 98, 750
d. 90, 625

9-21: The following data pertain to installment sales of Heart’s Store:

9-22: JGG Company began operations on June 1, 2013. The following information extracted from its records at year-end:

Cost of installment sales 1,093,750 Cost of regular sales 1,050,000 Markup on installment sale 140% of cost Markup on regular sale 33 1/3 on sales Balances at December 31, 2013:
Installment accounts receivable 1,575,000 Accounts Receivable 735,000 Operating expenses 70% of realized gross profit

9-24: Sulu Company is a dealer of air conditioners. For the period May 1, 2013 to May 31, 2013 Sulu Company gives a trade discount of 10% to all its buyers. On May 1, 2013, five units of air conditioners with a total list price of P100,000 and total cost of P59,800 were sold to Mr. Ramos. Sulu Company granted an allowance of P10,000 for Mr. Ramos' used air conditioners as trade in although the current fair value is P12,000. The balance was payable as follows: 20% of the balance paid at the time of

CHAPTER 9 | INSTALLEMENT | GUERRERO

a. P 23,240
b. P 19,040
c. P 18,496
d. P 22,576

9-25: On July 10, 2013, Toyota Motors, Inc. sold a new car to Mr. Sy for P850,000. The car costs Toyota P650,625. Mr. Sy paid 25% cash down-payment and traded his old car. Toyota granted an allowance of P80,000 on the old car traded, the balance payable in equal monthly installment payments. The monthly installment amounts to P30,000 inclusive of 12% interest on the unpaid balance of the principal amount of obligation. The old car traded in has a selling price of P120,000 after expending reconditioning cost of P22,500.

9-25: Computers, Inc. sells computers on the installment basis. For the year ended December 31,2013, the following were reported:

Cost of installment sales 525,000

Mr. Tom defaulted payment starting November 1, 2013 and the car was immediately repossessed. The repossessed car was appraised at a value of P93,750 at the time of repossession. Kia Motors had to incur additional cost of repairs amounting to P9,250 before the car was subsequently resold on December 1,2013 for P128,7S0 cash to Mr. Lim. .

1. What is the realized gross profit on December 31, 2013? a. P 97,490
b. P 98,990
c. P 71,740
d. P 47,640

Collections on:

a. P 443,680
b. P 440,404
c. P 428,080
d. P 440,176

9-28: SM Appliance Company uses the installment method of accounting. Pertinent data from the company's records show the following:

1.MM Company began operations on January 1, 2015 and appropriately uses the installment method of accounting. B. 390,000
2.TT Company, which began business on January 1, 2015, appropriately uses the installment sales method of accounting. D. 150,000 & 60,000
3.Dudong Electronics makes all of its sales on credit accounts for them using the installment sales method. For simplicity, assume that all sales occur on the first day of the year. Dudong Electronics charged 18% interest on the unpaid installment balance…The interest income C.

35,640
4.Dudong Electronics makes all of its sales on credit accounts for them using the installment sales method. For simplicity, assume that all sales occur on the first day of the year. Dudong Electronics charged 18% interest on the unpaid installment balance…The realized gross profit C.

167,960 & (800)
29.Mr. Matias is a dealer in appliance who sells on an installment basis. A refrigator which originally cost 9,240 was sold by him for 16,500 to Jose who made a down payment of 2,200, but defaulted in subsequent payments C. 968 & 1,200
30.The Matalino Furniture Company appropriately used the installment sales method in accounting for the following installment sale C. 320
31.Spicer Corporation has a normal gross profit on installment sales of 30% C. a 3,300 loss 32.Fryman Furniture uses the installment sales method. No further collections could be on an account with a balance of 18,000 B. 4,800
33.Oliver Co. uses the installment sales method. When an account had a balance of 8,400 no further collections could be made and the dining room set was repossessed D. 180 gain 34.Marceliano Sales Corp. accounts for sales on the installment basis, The balances of the control accounts for Installment Contracts Receivable at the beginning and end of 2016 were A. (381) & 172,852.50
35.Gizelle, Inc. started operation at the beginning of 2016, selling home appliances exclusively on the installment basis B. (9,000)
36.Since there is no reasonable basis for estimating the degree of collectability, Bloopers Company uses the installment method of revenue recognition for the following sales D. 125,000
37.James Smith Appliance Co. sold an equipment costing 10,000 for 16,000 on September 30, 2015 D. 2,328 & (521)
38.On September 30, 2015, Barry bought a car for 3,600,000…. What is the total collection on January 31, 2016 B. 214,000
39.Barry is to make equal monthly payments, each payment to apply first as interest at 12% on the unpaid principal and the balance as a reduction in principal C. 1,223,796.90
40.On September 30, 2015, Barry bought a car for 3,600,000…. What is the approximate effective interest rate if monthly payments of 200,000 plus interest at 12% charged on the original principal amount of 360,000 D. 39.38%
41.Sharon Company uses the installment sales method in accounting for its installment sales A.

2,500 loss & 6,500
42.The following table are available for Charo Company D. 25,275
43.On January 1, 2015, Janette Company sold 20,000 square meters of farmland for 600,000 to Michelle, taking in exchange a 10% interest bearing note B. -0- , -0- , 17,462
44.On June 1, 2015, the Foster Company sold inventory to the Ushman Corporation for 400,000 D.