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PROBLEM A = The books of Orlando Company shows the following balances o December 31, 2012:
Accounts Receivables 207,500
Deferred Gross Profit (before adjustment) 38,000

Analysis of the Accounts Receivables reveals the following:

Regular accounts 207,500
2011 installment Accounts 16,250
2012 installment accounts 90,000
Sales on installment basis in 2011 were made at 30% above cost; in 2012, at 33-1/3% above cost.
Expenses paid was P1,500 relating to installment sales.

1. How much is the net income on installment sales?

PROBLEM B = On July 10, 2014, Miami Motors, which maintains a perpetual inventory records sold a
new automobile to Heat Company for P1,700,000. The car costs the seller P1,301,250. The buyer paid
30% down and received P160,000 allowance on an old car traded, the balance is payable in equal
monthly installment payments. The monthly amortization amounts to P60,000 inclusive of 12% interest
on the unpaid amount of the obligation. The car traded in has a wholesale value of P240,000 after
expending reconditioning cost of P45,000. After paying three installments, the buyer suffered major
financial setback incapacitating him to continue paying so the car was subsequently repossessed. When
reacquired the car was appraised to have a fair value of P600,000.

2. How much is the increase/(decrease) in the net income of Miami Motors for this sale?

PROBLEM C = The Boston Company makes all of its sales on installment contracts and accordingly
reports its income on the installment basis. Installment contracts receivables are accounted for by years.
Defaulted contracts are recorded by debiting the Loss on Repossession account and crediting the
appropriate Installment Contract Receivable account for the unpaid balance at the time of default. All
repossessions and trade in are recorded at realizable values. The following data relate to the
transactions during 2014 and 2015.
2014 2015
Installment sales P150,000 P198,500
Installment contract receivable, December 31
2014 sales 80,000 25,000
2015 sales 95,000
Purchases 100,000 120,000
New merchandise inventory, December 31 (at cost) 10,000 26,000
Loss on repossessions 6,000
In 2015, the company auditor ascertained that the inventory taken on December 31, 2015 does not
include certain merchandise received as trade in on December 2, 2015 for which an allowance was
given. The realizable value of the merchandise was P1,500 which was also the allowance for trade in. No
entry was made to record this merchandise on the books at the time it was received.

Furthermore, a 2014 contract was defaulted and the merchandise was repossessed. The repossessed
merchandise had a realizable value of P 2,500. The repossessed merchandise was neither recorded nor
included in the physical inventory on December 31, 2015.

3. The gross profit rate in 2015 after adjustment is?

4. The balance of deferred gross profit in 2014 as of December 31, 2015 is?
5. The total realized gross profit to be reported for 2015 is?
6. The adjusted loss (gain) on repossession is?

PROBLEM D = Lakers Automobile sell locally manufactured jeepneys on the installment basis. The
information presented below relates to operation during the past three years:
2012 2011 2010
Cost of installment sales P8,765,625 P7,700,000 P4,950,000
Installment receivables balances – Dec. 31
2012 Installment sales 9,728,125
2011 Installment sales 3,025,000 8,387,500
2010 Installment sales 0 1,512,500 4,812,500
Gross Profit rate 32% 30% 28%
In year 2012, Lakers suffered loss of P33,250 due to repossessed jeepney on defaulted account related
to 2010 installment sales. Fair market value of the repossessed jeepney was P83,750.

7. Lakers Automobile uses installment method of accounting, what would the company report as total
realized gross profit for the year 2012?

PROBLEM E = January 1, 2007 Clippers sold brand new car with a cost of P1,200,000 is sold for
P1,600,000. A used car is accepted as a trade-in at a valuation of P260,000 plus P340,000 cash as
down payment. Clipper expects to spend P64,000 to recondition the used car before reselling it for
P280,000 with expected 20% gross profit. Two payments of P576,190 be made inclusive of 10% interest
on the unpaid balance of the principal. Installment payment is applied to interest first then to the balance
of the principal. First payment is on December 31 2007.
8. Using installment method, how much total revenue in year 2007 on this installment sales should
Clipper recognize?

PROBLEM F =The following selected accounts were taken from the trial balance on December 31, 2017
of Antigo Company:

Debit Credit
Accounts receivable – charge sales 750,000
Installment receivable – 2015 150,000
Installment receivable – 2016 450,000
Installment receivable – 2017 2,700,000
Merchandise inventory 1,141,500
Purchases 3,900,000
Freight in 30,000
Repossessed Loss 390,000
Cash Sales 1,136,250
Charge Sales 2,272,500
Installment Sales 5,335,800
Deferred gross profit – 2015 222,000
Deferred gross profit – 2016 393,600

The following additional information was also taken from the records of Antigo Company:

 Gross profit rate based on sales on 2015 installment sales was 30% and for 2016, the rate was 32%.
 Installment sales price exceed cash sales price by 24%, while charge sales prices exceed cash sales
by 20%.
 The entry made for repossessed goods in year 2017 was
Repossessed Loss 390,000
Installment Receivable – 2015 180,000
Installment Receivable – 2016 210,000
The repossessed merchandise on 2015 installment sales and 2016 installment sales has estimated
realizable value of P50,000 and P100,000 respectively.
 The company failed to record the trade in merchandise included in the installment sales in 2017
transaction. The trade in merchandise value accepted was P300,000. The company estimated the
reconditioning cost of this unit at P80,000 and a selling price of P535,000 after such reconditioning
cost. The company normally makes 20% profit on the sale of used units.
 Merchandise on hand at the end, excluding assigned value of trade in merchandise and
repossession merchandise, P335,000.
Determine the following:

9. What amount should be assigned to merchandise inventory trade-in?

10. How much is the adjusted loss on repossession?
11. How much is the total realized profit from installment sales in year 2017?
12. How much is the total realized gross profit in year 2017?

PROBLEM G = MIAMI HEAT Company, which began operations on January 1, 2016 appropriately uses
the installment method of accounting. The following data pertains to MIAMI HEAT’s operation for the
year 2016:

Installment sales 450,000

Regular sales 187,500
Cost of regular sales 107,500
Cost of installment sales 315,000
FMV of repossessed merchandise 27,000
Reconditioning cost 2,000
Operating expenses before defaults and repossessions 36,000
Collection on installment sales including interest P12,000 156,000
Installment receivables written-off due to defaults 22,000
Repossessed accounts 50,000

Determine the following:

13. How much is the deferred gross profit at December 31 2016?

14. How much is the total realized gross profit at December 31, 2016?
15. What is the net income for the year ended December 31, 2016?