9. 10. Under the installment method, the difference between the selling price and the cog of sale is recorded as Deferred gross profit. Income. Asset. |. Expense. eooe . Under the installment method, realized gross profit is computed at the end of each year by: a. Multiplying the total collections by the gross profit rate based on cost, b. Multiplying the total collections by the gross profit rate based on sales, c. Multiplying the selling price by the gross profit rate, d. Multiplying the cost of sales by the gross profit rate, At time of repossession, repossessed merchandise is debited at its: a. Onginal cost. b. Unrecovered cost. c. Fair value after reconditioning cost. d. Fairvalue before reconditioning cost. Installment accounts receivable account is classified in the balance sheet under: . Current asset. Fixed asset. . Other asset, |. Non-current set. Bore In the balance sheet, deferred gross profit account is classified as: a. Currentasset. b. Deferred credits. c. Current liability. d. Long-term liability.ean SS _— OL 92: 9-3: cs 0a Superman Company started operations on Janu, . ity 2, 2013, The following, information is gathered for 2013; tallment accounts re le, December 31 141,500,000 Deferred gross profit, December 41 (before adjustment) 1,050,000 Gross profit rate based on sales 25% What is the realized gross profit on sales for 201 3? P1,350,000 PI,125,000 « P $10,000 ad P 675,000 rR Gross profit rates of Batman Company were 35%, 33% and 30% of sales for 20112012 and 2013, respectively, The following account balan ces are available atthe end of 2013: Deferred gross profit Year of Sale Installment account receivable (before adjustment) 2011 P 6,000 P 7,230 2012 61,500 60,750 2013 195,000, 120,150 What is the total realized gross profit to be teported in the Statement of Comprehensive Income for the year ended December 31, 2013? P107,235 P102,105 P 61,650 P 97,235 RP oR The following information are obtained from the books of ‘accounts of Robin, Inc. on June 30, 2013: Deferred gross profit balance (After Adjustment) 202,000 Total collections on installment sales 440,000 Gross profit rate based on cost : 25% eoChapter 9 SMH ees No. 9-3: Continued 9-5: 9-6: Robin, Inc. uses the installment method of accounting. What is Robin's total installment sales for 2013? P1,560,000 P1,440,000 P1,450,000 P1,010,000 RO oR BMW Corporation sells car on a three year installment sales contract, On December 31, 2013, the last day of BMW’s first year of operations, the results of operations before adjustment are summarized below: Sales 1,000,000 Cost ofinstallment sales 700,000 Operating expenses 80,000 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. P220,000 b. P140,000 c. P150,000 d. P120,000 In 2013, a merchandise was sold on installment basis by MB Company for P80,000 at a gross profit of 25% on cost. During the year, a total of P42,500, including interest of P12,500 was collected on this contract. In 2013, no collection was made on this sale, and the merchandise was repossessed. The fair value of the merchandise is P34,000 after reconditioning cost of P4,000, Whats the gain (loss) on repossession? 2. (P10,000) b. (P14,000) c P10,000 d. (P20,000) Casablanca, Inc. which began operations on January 2, 2013, appropriately uses the installment method of accounting. The following information pertains to Casablanca’s operations for the 2013:Installment Sales ’ 395 No, 9-6: Continued 9-1 9-8: Tastallment sales” “eee P1,000,000 Cost ofinstallment sales cap Cost of regular sales tn Operating expenses 1 10,000 Collections on installment sales 200,000 ae re eS Tir ho gy e000 In its December 31, 2013 deferred gross profit? What amount should Casablanca, In. report as a. 400,000 b, P500,000 ce. P320,000 d. P150,000 JJ Company sold goods on installment, For the ji i eect ie year just ended, the following Installment sales Cost of installment sales sto Collections on installment sales 1,800,000 Repossessed accounts "200,000 Fair value of repossessed merchandise 120,000 ‘The repossession resulted to: a. Gain of P5,000. b. Loss of P80,000. c. No gain, no loss. d. Loss of P15,000. InJuly, 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 P 165,000 at the time of repossession. The realized gross profit in 2012 and the gain (loss) on repossession in 2013 amounted to: Realized Gross Profit Gain (oe er Repossession ( a. 5,0 " | 4 25,000 90,000 a 9,000 ( 2,500) d. 2,500 3,500396 Chapier 9 _————— eer ve 9-9: OnApril 1,2013, GE Company sold for P7,000 a refrigerator which had a cost of P4,550. A down payment of P750 was made with the provision that additiona] payments of P625 be made monthly thereafter. Interest was to be charged at g monthly rate of 2 percent on the unpaid balance of the principal; the monthly installment was to apply first to the interest then to the balance of the principal, After completing four months installment the customer defaulted and the refrigerator was repossessed. At this time, the fair valuc of the refrigerator (used) was estimated to be P1,875. The gain (loss) on repossession and the realized gross profit to be recognized in 2013 are: Gain (loss) on Repossession Realized Gross Profit a, (P847.98) P1,137.50 b (P847.98) P9I83.78 G (P562.50) P875.00 d. P 562.50 PI83.78 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: 2012 2013 Sales 300,000 450,000 Collections from: * 2012 sales 100,000 50,000 2013 sales - ed 150,000 Accounts written off: 2012 sales 25,000 75,000 2013 sales = 150,000 Gross profit rates 30% 40% What amount should Lexus Company report as deferred gross profit in its December 31,2013 Statement of Financial Position for 2012 and 2013 sales? a. P1I2,500 b. P125,000 a P 75,000 ' _ d. P 80,000397 Installment Sales = 2, 2012, Mustang Company sold a car to Mr. De Jesus for a caforvetd On this date, the car cost P735,000. Mr. De Jesus paid P150,000 as down-payment and signed a P900,000 interest bearing note at 10 percent. The note was payable in three annual installments of P300,000 beginning January 1,2013. Mr. De Jesus made a timely payment for the first installment on January 1, 2013 of P390,000 which included interest of P90,000 to date of payment. Mustang Company uses the installment method of accounting. In its December 31,2013 Statement of Financial Position, what amount should Mustang Company report as deferred gross profit? P180,000 P153,000 P270,000 P225,000 RP SR 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: 2012 2013 Installment sales P1,200,000 P1,500,000 Cost of installment sales 720,000 1,050,000 Collections on installment sales: 2012 sales 630,000 450,000 2013 sales : - 900,000. On January 8, 2013, an installment sale account in 2012 defaulted and the merchandise with fair value of P15,000 was repossessed. The related installment receivable balance as of date of default and repossession was P24. 000. What is the balance of the Unrealized gross profit account as of the end of 2013? P228,000 P218,400 P192,000 P275,000 RPS398 9-13: 9-15: Chapter 9 Microstation, Inc. sold computer equipment on installment basis on October 1, 2013. The cost to the company was P60,000 but the installment sales price was set at P85,000. Terms of payment included the acceptance ofaused computer equipment witha trade-in value of P30,000. Cash of P5,000 was paid in addition tothe trade-in equipment with the balance to be paid in ten (10) monthly installments due at the end of each month commencing the month of sale. The estimated selling price of the used computer equipment after reconditioning cost of P1,250 is P25,000. A 15 percent gross profit was usual from sale of used equipment. What is the gross profit to be realized from the 2013 collections? a. P34,000 b. PI10,000 c P 8,000 d. P 4,000 : OnDecember31, 2012, Jacinto Steel Inc. sold construction equipment to Anthony Company for P3,600,000. The equipment had cost P2,400,000. Anthony Company paid P600,000 cash on December 31, 2012 and signed a P3,000,000 note bearing interest at 10 percent payable in five annual installments of P600,000. Jacinto Steel, Inc. appropriately accounted for the sale under the installment method. On December 31, 2013, Anthony Company paid P900,000 including interest of P300,000. For the year ended December 31, 2013, what total amount ofrevenue should Jacinto Steel, Inc. recognized from the construction equipment sale and financing? a. P300,000 b. P200,000 c P500,000 d. P240,000 ACA Video Company sells betamax equipment. It maintains its accounting records ona 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 witha 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 Novemnber 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, whatiis the gain (loss) on repossession to be recognized? a. P(2,750) 6 P2,750 c P 750 d. P1,500 E399 Insiallment Sales tutomatic voltage regulators costing P700 at a price of P1,200. aa Cee aibbiie adozen Noles ae on installment and trade-in six (6) ofits old units at a trade-in value of P300 each. Gothong, Inc. spends P25 5 recondition the old units and sells them for P315. Gothong, Inc. expects ee percent gross profit from the sale of used voltage regulators. How much is the over-allowance granted by Gothong, Inc. on the trade-in? a. P249 6, PISO c, P339 d, P189 9-17: The books of Concepcion, Inc. show the following balances on December 31, 2013: Accounts Receivable P627,500 Deferred Gross Profit (before adjustment) 76,000 Analysis and aging of the accounts receivable reveal the following: Regular Accounts P415,000 2012 installment accounts 32,500 2013 installment accounts 180,000 Sales on an installment basis in 2012 were made at 30 Percent above cost, in 2013, at 33 1/3 percent above cost. What is the total realized gross profit for the year ended December 31, 2013: a. P23,500 b. P52,500 c. P45,000 d. P69,750 9-18: AMG: Corporation sells goods on installments basis, At year end, gross profit is Tecognized in proportion to collections. The following data are obtained from the Tecords of the AMG Corporation: January I December 31 Installment receivable: 2011 sales 120,100 = 2012 sales 1,772,300 2013 sales ‘ 5 ¥337,200Chapter 9 400 No. 9-18: Continued Sales and cost of sales for the three years are as follows: eee Cra DIL enc 20d, wh 2013 Sales ~~ p1,900,000 —-P2,160,000 _P3,010,000 Cost of Sales 1,235,000 1,425,600 1,896,300 In 2013, the company repossessed merchandise with an estimated resale value of P10,500 after reconditioning costs of P300. A P1,700 gross profit was normal from sale of repossessed merchandise. The sales were made in20 12 for P27,000 ‘on which P16,000 was collected prior to default. As collections are made the company debits cash and credits installment accounts receivable. For defaults and repossessions the company debits Inventory of. repossessed merchandise account and credits Installment accounts receivable for the unpaid balance. What is the amount of adjustment on the Inventory of repossessed merchandise to the extent of the unrealized gross profit? a. A decrease of P2,500 b. A decrease of P6,240 c. Zero d. A decrease of P3,740 9-19: The following information pertains to sale of real estate by Filstate Corporation on December 31, 2012: Sales price: Cash down-payment P 600,000 Mortgage Payable 5,400,000 Cost 4,000,000 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? a. P 540,000 b. None c. P 1,040,000 d. P 740,000Installment Sales 401 9-20: Presented below ar oa € the information taken from the books of Four Sisters ee ik 3 is ae ee Sales: gk Barer one rs Regular Installment Ee ened Cost of goods sold: Sty wy Regular Installment Paes ves Operating expenses on 31,250 Collections on accounts from: ; a Regular sales 4 Installment sales - 2012 Ni "35000 Installment sales -2013 ie 62,500 What is the net income for the year ended December 31, 2013? a. P78,125 b. P93,750 c. P98,750 d. P90,625 9-21: The following data pertain to installment sales of Heart’s Store: Down payment, 20% Installment sales: 2011 ‘545,000 ote 785,000 2013 968,000 Mark up on cost, 35% Collections after downpayment are: 40% during year of sale 35% during the year after 25% on the third year. pat eee ae i meee What is the balance of Deferred Gross Profit — 2012 at December 31, 2012? a. P97,689 b, P131,880 ¢. P141,112 d. P114,063402 Chapter 9 9-22: JGG Company began operations on June 1, 2013. The following information 9-23: extracted from its records at year-end: Cost of installment sales Cost of regular sales Mark-up on installment sale Mark-up on regular sales Balances at December 31, 2013: Installment accounts receivable Accounts receivable Operating expenses P1,093,750 1,050,000 140% of cost 33 1/3 on sales 1,575,000 735,000 70% of realized Gross profit Whaat is the net income for the year ended December 31, 2013? a, P341,250 b. P267,750 ec. P 90,157 d. P174,000 TMT Company, which began operations on January 2, 2013 appropriately uses the installment method of accounting. The following data pertain to 2013 operations: Installment sales 900,000 Regular sales 375,000 Cost of regular sales 215,000 Cost of installment sales 630,000 Fair value of repossessed merchandise 54,000 Operating expenses 72,000 Collections (including interest of P24,000) 312,000 Installment accounts written-off due to defaults 44,000 Repossessed accounts 100,000 Reconditioning cost 4,000 What is the net income for the year ended December 31, 2013? P151,600 P127,600 P158,400 P165,600 RO SRInstallment Sales 9-24: Sulu Compan: 9-24: 403 'Y 8a dealer of air Conditioners. For the period May 1, 2013 to Mean ae ComPany givesa rade discount of 10% toallits buyers. On Y 1, 2013, five units of aig Conditioners with a total list price of P100,000 and Py cost 0 P59:800 wets gold to Mie Ramos. Sulu Company granted an allowance of P10,000 for Mr Ramos’ used air conditioners as trade in although the current fair value is P12,090, The balance was payable as follows: 20% of the balance paid at the time of purchase; the rest is payable in 10 months starting, June 1,2013.A 15 Ss profit rate is usual from the sale of second hand air conditioners, im %e Bro: After six months Ofpaying, Mr. Ramos defaulted in the Payment ay Di 2013. The five ‘units Were repossessed and it would Tequire P2,000 reconditioning cost for each unit before it could be resold for P6,000 each. 1. ss muchis the gain (loss) on repossession to be recognized on December > 2013? P 3,360 P(3,360) P 1,760 P(1,760) ROSR 2. Whiatis the total realized gross profit under the installment method to be adjusted on December 3 1, 2013? a. P23,240 b. P19,040 c. P18,496 |, P22,576 On July 10, 2013, Toyota Motors, Inc. solda 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.404 Chapter y en No, 9-24: Continued After paying three installment, Mr. Sy suffered major financial Setback incapacitating him to continue paying. The car was subsequently Tepossesseq. When reacquired, the car was appraised to have a fair value of P300,000, 1. What is the gain (Joss) on repossession? P(62,617.50) P 62,617.50 P(62,716.50) P 62,716.50 ROS 2. Under the installment method, how much is the realized gross profit to be recognized at the end of the year? P 96,003 P 75,625 P100,000 P 90,073 ROS, 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 P525,000 Loss on repossessions 13,500 Fair value of repossessed merchandise 112,500 Account defaulted- 180,000 Deferred gross profit, December 31 108,000 How much was collected during the year? @ P210,000 b. P264,000 c P390,000 a P4IS,715ee es 9-26: Kia Motors sells cars both on installment and cash basis. On March 30, 2013, Kia Motors sold a car to Mr. Tom for P525,000 costing P414,000. A used car trap ted as down payment, P128,000 being allowed on the trade-in. The used car can be resold for P] 60,200 after reconditioning cost of P7,660. The corp h any &XPectS to make a 20% gross profit on the sale of used car. The balance of the sale is to be paid ona 10-month installment basis starting May 1, 2013. 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 Tepossession. Kia Motors had to incur additional cost of repairs amounting to P9,250 before the car was subsequently resold on December 1, 2013 for P128,750 cash to Mr. Lim. 1. Whatis the realized gross profit on December 31, 2013? P97,490 P9I8,990 P71,740 P47,640 RPSR 2. Whatis the net income for the year ended December 31 » 2013? a. P64,200 5. P38,450 c. P49,100 da. P40,100 9-27: My Home, Inc. sells appliances on installment basis. Below are some of the information from the records of the company. 2013 2012 2011 Cost of sales 850,000 686,000 596,160 Gross profit on sale 32% 30% 28% Collections on: 2013 sales 425,000 2012 sales 258,000 320,000 aiases 185,000 152,000 280,000406 Chapter 9 2a ARR RRS See No, 9-27: Continued During 2012, write-offs of 2011 unpaid accounts were made amounting to P7,200. During 2013, repossessions were made on defaulted accounts on 2012 sales for which unpaid balance amounted to P4,200. The fair value of the repossessed merchandise is P3,800. How much is the total deferred gross profit as of December 31, 2013? a. P443,680 b. 440,404 c. P428,080 a, P440,176 9-28: SM Appliance Company uses the installment method of accounting. Pertinent data from the company’s records show the following: 2011 2012 2013 Installment sales P750,000 —P937,500 —-P900,000 Cost of installment sales 562,500 712,500 630,000 Deferred gross profit, December 31: 2011 141,250 45,000 z 2012 = 150,000 ‘30,000 2013 a - 195,000 1. Howmuchis the total collection during 2013? P930,000 P750,000 P250,000 P850,000 RO SR 2. Whatis the total balance of the Installment Accounts Receivable account as of December 31, 2013? & a. P775,000 6. P750,000 c P770,000 d. P800,000installment Sales ae eee Diana’s Furniture sells furniture an . eae d electronic items ater ‘ iness ison and the foll Jon ie sonic items. The majority of its business is: Be snd eR ‘Owing information is available relating to sales transactions for 2011 if ae ae oe Installment sales (net of interest) Gross profit rates Gee ne ig Sedo Cash collections on installment sales: v : é Principal - 2011 57,200 29,120 15,000 Principal - 2012 71,920 26,680 Principal - 2013 : 76,230 Interest - 2011 17,870 3,030 Interest - 2012 9,780 6610 18,142 Interest - 2013 : ? 6378 Required: Prepare the journal entries for the year 2011, 201 2, and 2013 assuming Diana’s Fumiture uses the installment sales method for revenue recognition and records receivables net of interest, Wy oe Presented the following amounts: ; 2012 2013 Revenues-collection on principal 32,000 50,000 Revenues-interest i 3,600 5,500 Cost of goods purchases (includes increase in inventory of goods on hand of P2,000 in 2012 and P8,000 in 2013 45,200 52,020 The balances due on the notes at the end of year were as follows: 2012 ‘2013 Notes receivable - 2012 P62,000 P36,000 Notes receivable - 2013 - 60,000 Uneamed interest income - 2012 7,167 5,579 Unearned interest income - 2013 8,043Chapter 9 ae Problem 9-2: Continued : fate Required: Give the journal entries, for 2012 and 2013, assuming the installment sales method was used rather than the cash method. The statement of financial position of Good Buy Mart on January 1, 2013 is shown below: Assets Liabilities & Equity Cash P 40,000 Accounts Payable P 60,000 40,000 Deferred gross profit on es 24,000 pee Taner installment sales - 2011 Accounts receivable 22,000 Allowance for doubtful Deferred gross profit on accounts (2,000) installment sales - 2012 58,800 Installment contracts receivable Capital stock — 406,000 -2011 60,000 Retained earnings 151,200 Installment contracts receivable 2012 140,000 Other assets 200,000 - P700,000 700,000 Summary of transactions during 2013 are: Sales: Regular (on credit) 600,000 Installments 200,000 Purchases of merchandise (cash) 476,000 Ending inventory (periodic basis) 260,000 Cost of installment sales 114,000 Selling expenses 210,000 Allowance for doubtful accounts 1/4 of 1% of regular sales Collections: Regular accounts 560,000 2011 installments accounts 40,000 2012 installment accounts 80,000 110,000 2013 installment accounts Required: # 1. Compute the gross profit rates of 2011, 2012 and 2013. 2. Prepare the journal entries for 2013 including the December 31. adjusting and closing entries at 3. Prepare statement of comprehensive income not showing installment sales for 2013. 4, Prepare. statement of financial position as of December 31, 2013. Note; Disregard interest.installment Sales 409 RAR Dra ha See a nay Bea Sells appliances for cash and on the installment plan. Entries to record ee Monthly: The tial belanceon Deceainera 1, 2013 isas follows: Apple Company Trial Balance December 31, 2013 Cash Installment contracts receivable, 2017 ao Installment contracts receivable, 2013 76,000 Inventory ~ New merchandise 62,000 Inventory ~ Repossessed merchandise 12,000 Accounts Payable . P 48,700 Deferred gross profit, 2012 21,600 Capital stock 100,000 Retained earnings 42,000 Cash Sales 212,000 Installment Sales 150,000 Cost of sales f 165,000 Cost of installment sales 97,500 Gain or loss on repossessions 400 Selling and administrative expenses 66,000 P575,500 PS75,500 The accounting department has prepared the following analysis of cash receipts for the year: Cash sales P212,000 Installment contracts receivable, 2012 52,000 Installment contracts receivable, 2013 74,000 Others 18,000 Total P356,000 Data pertaining to the repossession recorded during the year are summarized as follows: ; } 2012 Uncollected balance ores Loss on repossession i ane Repossessed merchandise ;410 DM Charger Problem 9-4: Continued Required: From the trial balance and accompanying information: (a) Compute the gross profit rate on installment sales for 2012 and 2013. (b) Prepare adjusting and closing entries as of eine 1, 2013 under the installment method of accounting. (c) Prepare statement of ‘comprehensive income for the year ended December 3 1, 2013. PPG Discount Center, Inc. sells merchandise for cash and also on the installment plan, Entries to record cost of goods sold were made at the end of each year. PPG Discount Center, Inc. Trial Balance December 31, 2013 Cash P 50,700 Installment contracts receivable, 2012 36,000 Installment contracts receivable, 2013 55,000 ‘Inventory, January 1, 2013 60,000 Repossessed merchandise 3,000 Accounts payable P 12,000 Deferred gross profit, 2012 26,600 Capital stock 100,000 Retained earnings 20,000 Regular sales 200,000 Installment sales 80,000 Purchases 180,000 Loss on repossession 900 Operating expenses 53,000 438,600. P438,600 The inventory of merchandise on hand, Devember 31, 2013 consists of new merchandise, P50,000; repossessed merchandise, P2,000. There are no repossessed merchandise on hand on January 1, 2013. The cost of merchandise sold under the installment plan during 2013 was P54,400. Collections on contracts receivable during 2013 were as follows: Installment contracts receivable, 2012 P40,000 Installment contracts receivable, 2013 25,000nstallinent Sales 411 a problem 9-5: Continued Merchandise sold in 2012 was repossessed in 2013. The repossession was recorded correctly as follows: Deferred Gross Profit, 2012 2,100 Repossessed merchandise 3,000 Loss on Repossession 900 Installment Contracts Receivable, 2012 6,000 Part of this repossessed merchandise was sold for cash during 2013 and the sale was recorded by a debit to Cash and acredit to Sales. The rates of gross profit on 2012 and 2013 installment sales can be computed from the information given above, Required: 1, From the trial balance and the other information given above, prepare adjusting and closing entries as of December 3 1, 2013. 2. Prepare statement of comprehensive income for the year ended December 31, 2013 showing installment sales, Problem 9-6 The partial trial balance of London Products is presented below: London Products Partial Trial Balance December 31, 2013 Accounts receivable P 34,000 Installment contracts receivable, 2013 192,000 Installment contracts receivable, 2012 90,000 Installment contracts receivable, 2011 22,000 Merchandise inventory 48,000 Purchases 238,000 Freight-in x 12,000 Repossessed merchandise 14.000 Selling expenses ; 92,000 Loss on repossession, 2012 16,000 Loss on repossession, 2011 8,000 Bad debts — charge sales 1,000 Cash sales * 60,000 Charge sales 120,000 Installment sales 300,000 Unrealized profit, 2012 ° 56,000 Unrealized profit, 2011 32,000Chapter 9 412 Problem 9-6: Continued dditional information: : ; 7 1. Merchandise inventory on December 31,2013 (includingnew and repossessed merchandise) was P52,000. i ‘ 2. Charge a and installment sales prices were higher than cash sales rices by 20% and 25%, respectively. 33 oeee sales in 2011 and 2012 had gross profits rates of 40% and 35%, respectively. ‘ 4. The following is the summary of the repossession account on December 31, 2013: Installment FMV of Contracts Merchandise Loss receivable Year of Sales (Debit) (Debit) (Credit) 2011 P 2,000 P 8,000 P10,000 2012 12,000 16,000 28,000 Total P14,000 P24,000 P38,000 5. Theunrealized profit balances shown in the trial balance were the amounts as of January 1, 2013 and were not adjusted during the year. Required: 1. Schedule of cost of goods sold for the year ended December 31, 2013. 2. Schedule of allocation of cost of goods sold for the year ended December 31, 2013. 3. Statement of comprehensive income for the year ended December 31, 2013 showing gross profit earned on each type of sale. Matyas Fortune Sales Corporation began operations on J: january 2, 2012. All sales of new merchandise are made on installment contracts. Due to the risks ofnoncollection, Fortune Sales recognizes profit from the sale of new merchandise under the installment method of accounting and employs the periodic inventory: system. The following information were taken from the accounting records of Fortune Sales on December 31 for theInstallment Sales 413 problem 9-7: Continued os 2013 2012. Installment contracts rec civable: 2012 . 2013 P173,000 P400,000 Cash sales of trade-ins Sige Installment sales 3 th 2,210,000 Purchases 1,767,000 1,701,800 Inventories of new merchandise, January 1 “420,000 Operating expenses 592,960 537,000 Uncollectible installmeyt contracts expenses 99,000 On December 31,2013, the following information were obtained: a. Theinventories ofnew and repossessed merchandise on hand on December 31, 2013 were P358,820 and P46.500, respectively. b. Whena Customer defaults ona Contract, the repossessed merchandise is recorded atits approximate wholesale market value ina separate inventory account. Differences between the unpaid balance on the contract and the wholesale value are debited to the Uncollectible Installment Contracts Expense account. Repossessed merchandise issold on the installment plan. The wholesale value of repossessed merchandise is determined as follows: 1. Merchandise repossessed during the year of sale is valued at 40% of original . selling price. 2. Merchandise repossessed subsequent to the year of sale is valued at 20% of. original selling price. d. There wereno defaulted installment contracts during 2012, An analysis of installment contracts defaulted and written off during 2013 follows: Original Unpaid Contract Selling Pricé Balance 2012 contracts ; een #105000 2013 contracts ues 82,000 €. On January 1, 2013, Fortune Sales began granting allowances on merchandise traded in as part payment on new sales. During 2013, Fortune Sales granted trade- in allowances of P226,000. The wholesale market value of traded-in merchandise was P158,000. All merchandise traded in during the year was sold for cash. £ Fortune Sales used the installment method of accounting for merchandise sold on the installment plan, both for financial accounting and for income tax. purposes.ia Chapter 5 Problem 9-7: Continued Required: 1, Compute the amounts of deferred gross profit on installment sales on December 31, 2012 and 2013. Include a supporting computation of the gross profit percentage on installment sales for each year. : 2. Compute the adjustment (if any) that you would recommend for the Uncollectible Installment Contracts Expense account on December 31, 2013. 3. Prepare statement of comprehensive income (showing cash sales, installment sales, and total sales) for the year ended December 31, 2013. The following supporting schedules should be prepared: a. Unrealized gross profit on 2013 installment sales. b. Realized gross profit on 2012 installment sales. Mr. Pedro Bernal purchased two adjoining lots in 2012. Lot 1 was purchased for P360,000 and Lot 2 was purchased for P240,000. Mr. Bernal later converted the two lots to three lots. The cost of the third lot was determined by allocating a portion of the cost of the original lots to it. The three pieces of property were sold during 2012 on the following terms: Sales Date Down Equal Lot Price of Sale Payment Installment Payments 1 360,000 Oct. 31 P 72,000 P12,000 every 2 months 2 400,000 Mar31 36,000 16,000 every 3 months 3 840,000 June 30 120,000 50,000 every 6 months Each installment payment is to be applied first to the accrued interest on the principal amount owed at the rate of 12%, the balance to a reduction of principal. The buyer of Lot 3 did not fulfill the contract. He failed to pay the installment due on June 30, 2012. The property was then repossessed in 2013. Required: 1. Prepare journal entries to record the transactions for 2012. 2. Prepare the entry to record the realized gross profit on December 31, 2012. 3. Record the repossession of Lot 3 in 2013, assuming the market value is 20% less than the original cost. E\ , tak meee Company Was organized in January 2013 to acquire unimproved rests on speculation, ee led into lots for sale as homesites. Inasmuch as the project (after deducting any Se decided to recognize gross profits on sales of lots issions pat i ; h collected each year bears to the sae co to salesmen) in the proportion that cas! The transactions in 2013 were as follows: a, Purchased for cash 12 hectay ivisi Rhsidad tee he Ctares of land for subdivision at a cost of P4,800,000. d into 300 lots with the remaining area devoted to streets and other general Purposes. Prices of lots according to location, as follows: P150,000 for A lots, P100,000 for B lots, and P80,000 for C lots, There were 80 A lots, 100 B lots, and the remainder were C lots. b. Costs and expenses incurred in 2013 were as follows: Legal fees for purchasing land, surveying fees, etc. P600,000 Grading contract 225,000 Water and sewerage system contract 184,900 Paving contract 266,300 Building model home, which is to be offered for sale and is expected to yield a profit 1,350,000 Advertising and promotion 730,000 General office expenses, of which one fourth is considered applicable to the period after development of the lots has been completed 236,000 Sales manager's salary 120,000 Sales commissions 221,000 c. Sales during 2013 were all at the standard prices, as follows: A lots- 26; B lots- 32; C lots- 12. 1d with a one fourth down payment except six of the A lots which were a lots Meet ‘The notes taken were for payment in three installments starting one year from the date of sale. Interest on the notes are to be ignored. ee zi it showing the net profit of the com, y in Required: Prepare in good form a statement sho a 2013. Show the necessary supporting computations.a red into a contract witha manufacturing company Rizal Company, on January 2, 2011 entet : . to purchase room-size air conditioners and to sell the unfts on an installment plan with collections over approximately 30-months with no interest charge. For income tax purpose Rizal elected to reportincome from its sales of air conditioners according to the installment method. Purchase and sales of new units were as follows: Units Purchased 4 Unit Sold Year Quantity Price Each Quantity Price Each < 2011 12 P10,000 10 P15,000 2012 18 9,000 2 14,000 2013 8 10,500 a 14,300 Collections on installment sales were as follows: Collection received 2011 2012 2013 2011 Sales 30,000 P60,000. P60,000 2012 Sales 70,000 115,000 2013 Sales 21,000 In 2013, 4 units from 2012 sales were repossessed and sold for P725 each on the installment plan. At the time of repossession P 1,200 had been collected from the original purchases and the units had a fair value of P2,520. General and administrative expenses for 2013 were P50,000. No charge has been made against current income for an advance payment of P10,000 on a new contract to purchase air conditioners beginning January 2, 2014. Required: Assuming that the weighted average is used for determining the inventory cost, including repossessed merchandise, prepare Statement of Comprehensive Income for 2013 with the following supporting schedules. Cost of goods sold on installment. Average unit cost of goods sold on installment for each year. Gross profit rates for 2011, 2012 and 2013. Gain or loss on repossession in 2013. PenNe