Advanced Accounting Quiz 8 Installment Sales Part 1 of 2

INSTALLMENT SALES- AAC and BAC The Central Plain Subdivision sells residential subdivision lots in installment. The following information was taken from the accounting records of Central Plain Subdivision as at Dec. 31, 2015: Installment Accounts Receivable, Jan. 1(2014 contracts) P755,000 Installment Receivable, Dec. 3 1 (2015 contract) 840,000 Installment Accounts Receivable, Dec. 31 (2014 contracts) 600,000 Unrealized Gross Profit, Jan. 1 (2014 contracts) 339,750 Installment Sales 950,000 2015 contracts’ gross profit rate is 5% lower than that of 2014. Question 1. Give the realized gross profit to be recognized in 2015. Question 2. Give the balances of the unrealized gross profit in Dec. 31, 2015. Mahangin Company which began operation in 2014 sells air cooling appliances and freezers in installment basis. The following information is given to you for 2015: Total cash collections (a third coming from 2014 contracts) P712,425 Down payment received in 2015 250,000 Deferred Gross Profit, Dec. 31 for 2015 sales 465,500 Gross Profit Ratio for 2015 35% GPR for 2014 was 2% lower than the current ratio Installment Receivable, Dec 31 (2014 contracts). P187,525 3. 4. 5. 6. 7.

What is the total amount of sales revenue for 2015 contracts? What is the cost of sales for 2015 contracts? Last 2 entries at the end of year. Under accrual method, what will be realized gross profit at the end of 2015? If instalment sales for 2014 was P750,000, using cost recovery method, how much will realized gross profit be in 2015 for the 2014 contracts.?

SOLUTION PROBLEM A 1.) GPR (339.75/755) COLLECTIONS 755-600 REALIZED GP 2.) UNREALIZED GP (339.75-69.75)

2014 45% 155,000

(45-5) (950-840)

69,750 P270,000

(840 x 40%)

PROBLEM B 3) INSTALLMENT RECBLE 12/31 465,500/35% ADD BACK COLLECTIONS 712,425 X 2/3 INSTALLMENT SALES

2015 40% 110,000

TOTAL

44,000

P113,750

P336,000

P1,330,000 474,950 P1,804,950

4) SALES 1,804,950 X COST RATIO 65% (100-35) = COST OF SALES P1,173,217.50 5) RGP FROM 2014 CONTRACTS (712,425 /3= 237,475 X 33% = P78,366.75 RGP FROM 2015 CONTRACTS (474,950 X 35% = P166,232.50 6) INSTALLMENT SALES COST OF INST SALES DEFERRED GP- 2015 DEFERRED GP-2014 DEFERRED GP-2015 REALIZED GP

P1,804,950 P1,173,217.50 631,732.50 P78,366.75 166,232.50 P244,599.25

7) SALES OF P1,804,950 LESS COST OF SALES 1,173,217.50 = REALIZED GP P631,732.50 8) SALES OF 750,000 X 67% = TOTAL COST TO BE RECOVERED P502,500 BEFORE RECOVERY OF PROFIT COLLECTIONS IN 2014 P325,000 IN 2015 P237,475

RECOVERY OF COST 325,000 177,500

Add back ending balance to collections = beg balance of recble, thus 187,525 = 237,475= 425,000 750,000 – 425,000= COLLECTIONS IN 2014 P325,000

RECOVERY OF PROFIT 59,975

INSTALLMENT SALES- CAC and DAC The Central Plain Subdivision sells residential subdivision lots in installment. The following information was taken from the accounting records of Central Plain Subdivision as at Dec. 31, 2015: Installment Accounts Receivable, Jan. 1(2014 contracts) Installment Receivable, Dec. 3 1 (2015 contract) Installment Accounts Receivable, Dec. 31 (2014 contracts) Unrealized Gross Profit, Jan. 1 (2014 contracts) Installment Sales

P755,000 840,000 600,000 264,250 950,000

2016 contracts’ gross profit rate is 5% lower than that of 2014. Question 1. Give the realized gross profit to be recognized in 2015. Question 2. Give the balances of the unrealized gross profit in Dec. 31, 2015. Mahangin Company which began operation in 2014 sells air cooling appliances and freezers in installment basis. The following information is given to you for 2015: Total cash collections (a third coming from 2014 contracts) P712,425 Down payment received in 2015 250,000 Deferred Gross Profit, Dec. 31 for 2015 sales 465,500 Gross Profit Ratio for 2015 40% GPR for 2014 was 2% lower than the current ratio Installment Receivable, Dec 31 (2014 contracts). P187,525 8. 9. 10. 11. 12.

What is the total amount of sales revenue for 2015 contracts? What is the cost of sales for 2015 contracts? Last 2 entries at the end of year. Under accrual method, what will be realized gross profit at the end of 2015? If instalment sales for 2014 was P750,000, using cost recovery method, how much will realized gross profit be in 2015 for the 2014 contracts.?

SOLUTION PROBLEM A 1.) GPR (264.25/755) COLLECTIONS 755-600 REALIZED GP 2.) UNREALIZED GP (264.25-54.25) OR 600,000 X 35%

2014 35% 155,000

(35-5) (950-840)

54,250 P210,000

PROBLEM B 3) INSTALLMENT RECBLE 12/31 465,500/40% ADD BACK COLLECTIONS 712,425 X 2/3 INSTALLMENT SALES

(840 x 30%)

2015 30% 110,000

TOTAL

33,000

P87,250

P252,000

P1,163,750 474,950 P1,638,700

4) SALES 1,638,700 X COST RATIO 60% (100-40) = COST OF SALES P983,220 5) RGP FROM 2014 CONTRACTS (712,425 /3= 237,475 X 38% = P90,240.50 RGP FROM 2015 CONTRACTS (474,950 X 40% = P189,980 INSTALLMENT SALES COST OF INST SALES DEFERRED GP- 2015

P1,638,700

DEFERRED GP-2014 DEFERRED GP-2015 REALIZED GP

P90,240.50 189,980.00

P983,220 655,480

P280,220.50

6) REALIZED GP P655,480 refer to entry for deferre)d gross profit in no. 5 7) SALES OF 750,000 X 62% = TOTAL COST TO BE RECOVERED P465,000 BEFORE RECOVERY OF PROFIT COLLECTIONS IN 2014 P325,000 IN 2015 P237,475

RECOVERY OF COST 325,000 140,000

RECOVERY OF PROFIT 97,475

Add back ending balance to collections = beg balance of recble, thus 187,525 + 237,475= 425,000 750,000 – 425,000= COLLECTIONS IN 2014 P325,000 as recovery of cost, balance of cost to be recovered in 2015