Title - ACC16 - HO 2 Installment Sales 11172014 Revenue Profit (Accounting) Business Economics Payments Economies 1.4 MB 7
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ACC16

On 31 December 2012, account balances before adjustments for realized gross
profit on installments sales were:

Installment sales in 2012 were made at 42% above cost of merchandise.

The total realized gross profit on installment sales in 2012:

a. 132,510 b. 98,910 c. 97,510 d.102,834

Problem 5: Karen Corporation started operations on January 1, 2011 selling
home appliances and furniture sets both for cash and installment basis. Data on
the installment sales operations of the company gathered for the years ending
December 31, 2011 and 2012 as follows:

2011 2012

Installment Sales

400,000.00 500,000.00

Cost of Installment Sales

240,000.00 350,000.00

Cash collected in Installment
Sales

2011 Installment Contracts

210,000.00 150,000.00

2012 Installment Contracts

- 300,000.00

On January 5, 2013, an installment sale in 2011 was defaulted and the
merchandise with an appraised value of P5,000 was repossessed. Related
installment receivable balance on January 5, 2013 was P8,000.

a. Compute the balance of Deferred Gross Profit on December 31, 2012.
______________________
b. Compute the gain or loss on repossession in 2013. ______________________

Problem 6: A& K Company uses installment sales method for their installment
sales. On January 1, 2008, a treadmill that cost P24,000 was sold for P40,000 to
Mr. Bert. Bert made a down of P10,000 and paid 6,000 per month for the next
three months. When no further collection could be made, the treadmill sold was
repossessed. The estimated selling price was determined to be at P8,000 after
the company spent P1,000 for reconditioning cost. A 25% gross profit was usual
from the sale of used treadmill.

a. Determine the gain or loss on repossession assuming the use of installment
sales method. ______
b. Determine the gain or loss on repossession assuming that full profit is
recognized when the sale is made. (Time of Sale/ Point of Delivery)
______________________

Prof. Albert I. Rivera, CPA, MBA Page

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ACC16

Problem 7: The Austin Company accounts for its sales on the installment sales
basis. At the beginning of 2008, ledger accounts include the following account
balances:

Installment Accounts
Receivable, 2006 90,000.00
Installment Accounts
Receivable, 2007 288,000.00
Deferred Gross Profit, 2006 37,800.00
Deferred Gross Profit, 2007 108,000.00

At the end of 2008 account, balances before adjustment for realized gross profit
on installment sales are:

Installment Accounts
Receivable, 2006 -
Installment Accounts
Receivable, 2007 72,000.00
Installment Accounts
Receivable, 2008 390,000.00
Deferred Gross Profit, 2006 37,800.00
Deferred Gross Profit, 2007 103,050.00
Deferred Gross Profit, 2008 180,000.00

Installment sales in 2008 are made at 25% above the cost of merchandise sold;
cash sales amounting to P700,000 were made at a markup of 30% of sales and
credit sales of P200,000 at a markup of 32%. During 2008, upon default in
payment by the customer, the company repossessed the merchandise with an
estimated market value of P60,000. The sales was made in 2007 for P32,400 and
P19,200 had been collected prior to repossession.

Determine the:
1. Total realized gross profit before gain or loss on repossession in 2008:
a. 489,850 b. 215,850 c. 113,850 d. 102,000

2. Realized gross profit on installment sales in 2008 for 2008 sales:
a. 489,850 b. 215,850 c. 113,850 d. 102,000

3. Realized gross profit on installment sales in 2008 for 2007 sales:
a. 489,850 b. 215,850 c. 76,050 d. 37,800

4. Realized gross profit on installment sales in 2008 for 2006 sales:
a. 489,850 b. 102,000 c. 76,050 d. 37,800

5. The total realized gross profit on installment sales in 2008:
a. 489,850 b. 215,850 c. 113,850 d. 102,000

Problem 8: Using the same information in Problem 6, assuming that A&K
Company wants to improve the salability of the repossessed merchandise, the
company incurred P500 for reconditioning. After which the company was able to
sell the merchandise to another customer of P8,125 at a down payment of 40%.
Compute the realized gross profit on the subsequent installment sale:

Prof. Albert I. Rivera, CPA, MBA Page