Chapter 9 - 2013 ed

CHAPTER 9 Installment Sales MULTIPLE CHOICE ANSWERS AND SOLUTIONS 9-1: d Deferred gross profit, Dec. 31 (before adjustment) Less: Deferred gross profit, Dec. 31 (after adjustment) Installment accounts receivable, Dec. 31 Gross profit rate Realized gross profit, 2013 OR Installment Sales (P1,050,000  25%) Less: Installment account receivable, Dec. 31 Collection Gross profit rate Realized gross profit, 2013

P1,050,000 P1,500,000 ____ 25%

__375,000 P 675,000 P4,200,000 __1,500,00 P2,700,000 ___X 25% P 675,000

9-2: a Deferred gross profit, before adjustment Deferred gross profit, end 2011 (6,000 X 35%) 2012 (61,500 X 33%) 2013 (195,000 X 30%) Realized gross profit, December 31, 2013 (Total – P107,235)

2011 P7,230

2012 P 60,750

2013 P 120,150

2,100 20,295 P5,130

P 40,455

___58,500 P 61,650

9-3: c Deferred gross profit balance, end Divide by Gross profit rate based on sales (25%  125%) Installment Accounts Receivable, end Collection Installment Sales

P 202,000 ____ 20% P1,010,000 ___440,000 P1,450,000

9-4: b Sales Cost of installment sales Deferred gross profit Less: Deferred gross profit, end Installment accounts receivables, 12/31 (1,000,000-400,000) Gross profit rate (300,000  1,000,000) Realized gross profit Operating expenses Operating income Interest and financing charges Net income

P1,000,000 __700,000 P 300,000

P 600,000 ___X 30%

__180,000 P 120,000 ___80,000 40,000 __100,000 P 140,000

9-5: a Market value of repossessed merchandise (before reconditioning cost) Less: unrecovered cost Unpaid balance (80,000-30,000) Less: Deferred gross profit (50,000X20%) Loss on repossession

P 30,000

P 50,000 ___10,000

__40,000 (P 10,000)

9-6: a Installment sales Less: collection on installment sales Installment account receivables, 12/31/08 Gross profit rate (500,000  1,000,000) Deferred gross profit, 12/31/08

P1,000,000 __200,000 800,000 ___X 50% P 400,000

OR Deferred gross profit (1,000,000-500,000) Less: Realized Gross Profit (200,000 X 50%) Deferred gross profit, 12/31/13

P500,000 _100,000 P400,000

Fair value of repossessed merchandise Less: unrecovered cost Unpaid balance Less: Deferred gross profit (200,000 X 32.5%) Loss on repossession

P120,000

9-7: d

P 200,000 ___65,000

_135,000 (P 15,000)

9-8: b Realized gross profit: Collections: Downpayment Installment received (205,000-200,000) Total Gross Profit Rate (150,000  240,000) Realized gross profit Gain (loss) on repossession: Appraised value of repossessed merchandise Less: unrecovered cost unpaid balance less: deferred gross profit (200,000 X 62.5%) Gain on repossession

P 35,000 ___5,000 40,000 _X 62.5% P 25,000

P165,000 P 200,000 __125,000

__75,000 P 90,000

9-9: b Sch.1

Date Apr-1 Apr-1 May-1 Jun-1 Jul-1 Aug-1

Collection

Applying to Interest

Applying to principal

125.00 115.00 104.80 __94.40 P439.20

750.00 500.00 510.00 520.20 ___530.60 P2,810.80

750 625 625 625 625

Gain (loss) on repossession: Market value of repossessed merchandise Less: unrecovered cost unpaid balance of principal (sch. 1) less: deferred gross profit (4,189 X 35%) Loss on repossession (rounded)

Balance of principal P7,000.00 6,250.00 5,750.00 5,240.00 4,719.80 4,189.00

P 1,875 P 4,189 __1,466

Realized gross profit: Collection applying to principal (sch. 1) Gross profit rate Realized gross profit 9-10: c

___2,723 (P 848)

P2,810.80 __X 35% P 983.78 Year of Sales 2012

Deferred gross profit (Sales X Gross Profit Rate) 2012 (P300,000 X 30%) 2013 (P450,000 X 40%) 2012: Accounts written-off (P25,000 X 30%) Realized gross profit (P100,000 X 30%)

2013

P 90,000 P 180,000 ( 7,500) ( 30,000)

2013:

Accounts written-off, 2012 (P75,000 X 30%) Accounts written-off, 2013 (P50,000 X 40%) Realized gross profit, 2012 (P50,000 X 30%) Realized gross profit, 2013 (P150,000 X 40%) Deferred gross profit, 12/31/08 (P75,000)

( 22,500) ( 60,000) ( 15,000) ________ P 15,000

( 60,000) P 60,000

9-11: a Deferred gross profit, 2012 (P1,050,000 - 735,000) Realized gross profit, 2012 (P150,000 X 30%) Deferred gross profit, 12/31/12 Realized gross profit, 2013 (P390,000-90,000) X 30% Deferred gross profit, 12/31/13

P 315,000 ( 45,000) 270,000 ( 90,000) P 180,000

9-12: a 2012 P 480,000 ( 252,000) ( 180,000) _______ P 48,000

Deferred gross profit (Sales - Cost of Installment Sales) Realized gross profit, 2012 (P630,000 X 40%) Realized gross profit, 2012 (P450,000 X 40%) Realized gross profit, 2013 (P900,000 X 30%) Deferred gross profit, 12/31/13 (P228,000)

2013 P450,000

( 270,000) P180,000

9-13: c Trade-in value Less: Actual value Estimated selling price Less: reconditioning cost normal gross profit (25,000 X 15%) Overallowance Realized gross profit: Collection: Downpayment Actual value of merchandise-Trade In Installment collected (5,000 X 3)

P 30,000 P 25,000 P 1,250 __3,750

___5,000

P 5,000 20,000 _15,000

Gross Profit Rate: Sales Overallowance Net Sales Cost of Installment Sales Gross Profit Gross Profit Rate (15,000  75,000) Realized Gross Profit

__20,000 P 10,000

P 40,000

P 85,000 ( 10,000) P 75,000 _60,000 P 15,000 ___X 20% P 8,000

9-14: c Collection excluding interest (P900,000-P300,000) Gross profit rate (P1,200,000  P3,600,000) Realized Gross Profit, December 31, 2013 Add Interests Total Revenue

P 600,000 X 33 1/3% 200,000 __300,000 P 500,000

9-15: a Wholesale value of repossessed merchandise Less: unrecovered cost Unpaid balance: Sales, 10/1/12 Collection, 2012 (6,000  2,000) Collection, 2013 (1,000 X 7) Deferred gross profit (9,000 X 25%) Loss on repossession 9-16: a

P

P 24,000 ( 8,000) ( 7,000)

P 9,000 __2,250

4,000

___6,750 (P 2,750)

Trade-in Value (P300 X 6) Less: Actual value Estimated selling price (P315 X 6) Less: Reconditioning cost (P25 X 6) Gross Profit (P1,890 X 10%) Over-allowance

P

1,800

P 1,890 P150 _189

___339

___1,551 P 249

9-17: a Deferred gross profit, before adjustment Deferred gross profit, end 2012: P32,500 X (30%  130%) 2013: P180,000 X (33 1/3%  133 1/3%) Realized gross profit on installment sales

P 76,000 P 7,500 _45,000

__52,500 P 23,500

9-18: d Unpaid balance (P27,000 - P16,000) Multiply by gross profit rate (P734,400  P2,160,000) Deferred gross profit to be cancelled on repossession

P 11,000 ___X 34% P 3,740

Collection: 2012 Downpayment 2013 Installment collection Interest Total

P 600,000 600,000 __540,000 P1,740,000

Cost to be recovered

P4,000,000

9-19: b

Since cost is not yet fully recovered, then no gross profit is to be recognized in 2013. 9-20: d Regular Sales Cost of regular sales Gross profit on regular sales Add: Realized gross profit on installment sales 2012 (25,000 X 50%) 2013 (62,500 X 55%) Total realized gross profit Operating expenses Net income, 12/31/13 9-21: a

Installment sales – 2012 Collections: Down payment (20% x 785,000) Installment (40% x 628,000) Installment accounts receivable 2012, 12/31/07 Gross profit rate on sales Deferred gross profit- 2012, 12/31/12

P 187,500 __112,500 P 75,000 P12,500 _34,375

__46,875 121,875 ___31,250 P 90,625

P785,000 P157,000 251,200 408,200 376,800 35/135 P 97,689

9-22: a Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Installment sales (1,093,750 x 240%) Installment accounts receivable-12/31/13 Collections Gross profit on rate on sales

P1,575,000 1,050,000 525,000 2,625,000 1,575,000 1,050,000 140/240

612,500

Total realized gross profit Operating expenses (1,137,500 x 70%) Net income

1,137,500 796,250 P 341,250

Regular sales Cost of regular sales Gross profit on regular sales Realized gross profit on installment sales: Collections excluding Interest (312,000 – 24,000) Gross profit rate (270,000/900,000) Total realized gross profit Loss on repossession Fair value of repossessed merchandise Less: Unrecovered cost (100,000 x 70%) Total realized GP after loss on repossession Less: Operating expenses Installment accounts written-off (44,000 x .70) Net operating income Interest income Net income

P375,000 215,000 160,000

9-23: a

288,000 30%

86,400 246,400

54,000 70,000

( 16,000) 230,400

72,000 30,800

102,800 127,600 24,000 P151,600

SOLUTIONS TO PROBLEMS

Problem 9 – 1 Journal Entries: Installment A/R–2011........................... Installment A/R–2012 Installment A/R–2013........................... Installment Sales ...........................

2011 104,000 – – 104,000

2012 – 116,000 – 116,000

2013 – – 121,000 121,000

Cost of Installment Sales ...................... Inventory.......................................

64,480 64,480

68,440 68,440

73,810 73,810

Cash ...................................................... Installment A/R–2011 Installment A/R–2012................... Installment A/R–2013................... Interest Revenue ...........................

66,980 57,200 – 9,780

125,520 29,120 71,920 _ 24,480

145,460 15,000 26,680 76,230 27,550

Installment Sales................................... Cost of Installment Sales .............. Deferred Gross Profit–2011 .......... Deferred Gross Profit–2012 .......... Deferred Gross Profit–2013 ..........

104,000 64,480 39,520 – –

116,000 68,440 – 47,560 –

121,000 73,810 – – 47,190

Deferred Gross Profit–2011.................. Deferred Gross Profit–2012.................. Deferred Gross Profit–2013.................. Realized Gross Profit .................... Computations: 2011: P57,200 X .38

21,736 – – 21,736

=

P21,736

2012:

P29,120 X .38 P71,920 X .41 Total RGP

= =

P11,066 29,987 P40,553

2013:

P15,000 X .38 P26,680 X .41

= =

P 5,700 10,939

11,066 29,487 – 40,553

5,700 10,939 29,730 46,369

P76,230 X .39 Total RGP

2012:

2013:

=

29,730 P46,369

Problem 9 – 2 Inventory ........................................................................................................... 45,200 Cash........................................................................................................... Notes Receivable 2012 (P32,000 + P62,000 + 3,600)....................................... 97,600 Unearned Interest Revenue (P7,167 + P3,600).......................................... Installment Sales........................................................................................ Cost of Installment Sales (P45,200 – P2,000 inventory increase) ..................... 43,200 Inventory ................................................................................................... Cash..... ............................................................................................................. 35,600 Notes Receivable 2012 .............................................................................. Unearned Interest Revenue 2012....................................................................... 3,600 Interest Revenue ........................................................................................ Installment Sales ............................................................................................... 86,833 Cost of Installment Sales ........................................................................... Deferred Gross Profit on Installment Sales–2012...................................... Deferred Gross Profit on Installment Sales–2012 ............................................. 16,080* Realized Gross Profit on Installment Sales................................................ *Gross profit percentage: 50.25% (P43,633  P86,833) .5025 x 32,000 = P16,080 Inventory ........................................................................................................... 52,020 Cash........................................................................................................... Notes Receivable–2013 ..................................................................................... 89,5001 Unearned Interest Revenue........................................................................ Installment Sales........................................................................................ 160,000 + (P50,000 + P5,500) – P26,000* = 89,500 *2012 Notes receivable collected in 2013 2Interest revenue from 2012 notes: P7,167 – P5,579 = P1,588 Interest revenue from 2013 notes: P5,500 – P1,588 = P3,912 Discount on notes receivable at end of 2013 ..................................................... P 8,043 Interest revenue from 2013 notes (see above) ................................................... 3,912 Total discount at time of sale............................................................................. P11,955 Cost of Installment Sales (P52,020 – P8,000) ................................................... 44,020 Inventory ................................................................................................... Cash..... ............................................................................................................. 55,500 Notes Receivable–2012 (P62,000 – P36,000) ........................................... Notes Receivable–2013 ............................................................................. * P89,500 – P60,000 = P29,500 Discount on Notes Receivable–2012................................................................. 1,588 Discount on Notes Receivable–2013................................................................. 3,912 Interest Revenue ........................................................................................ Installment Sales ............................................................................................... 77,545 Cost of Installment Sales ........................................................................... Deferred Gross Profit on Installment Sales–2013...................................... Deferred Gross Profit on Installment Sales–2012 (P26,000 – P1,538 = P24,412; P24,412 x .5025) .............................................................. 12,267 Deferred Gross Profit on Installment Sales–2013 ............................................. 11,062* Realized Gross Profit on Installment Sales................................................ profit percentage: 43.23% (P33,525 ¸ P77,545) .4323 x (P29,500 – P3,912) = P11,062

1.

2011:

Gross profit rate

=

2012:

Gross profit rate

=

Deferred gross profit, 1/1 ––––––––––––––––––––– Install. contracts rec'l, 1/1 Deferred gross profit, 1/1 –––––––––––––––––––––

=

=

P24,000 ––––––– P60,000 P24,000 –––––––

=

40%

=

42%

45,200 10,767 86,833 43,200 35,600 3,600 43,200 43,633 16,080

52,020 11,9552 77,545

44,020 26,000 29,500*

5,500 44,020 33,525

23,329

Install. contracts rec'l, 1/1

2013: 2.

Gross profit rate

Gross profit =––––––––––––– = Installment sales

P140,000 P86,000 ––––––––––= P200,000

Journal Entries: Accounts Receivable ................................................................................................. Sales .... ............................................................................................................. Installment Contracts Receivable – 2013 .................................................................. Installment Sales ............................................................................................... Cost of Installment Sales........................................................................................... Shipments on Installment Sales......................................................................... Purchases..... ............................................................................................................. Cash..... ............................................................................................................. Selling Expenses ....................................................................................................... Cash..... ............................................................................................................. Cash....... ..... ............................................................................................................. Accounts Receivable ......................................................................................... Installment Contracts Receivable – 2011 .......................................................... Installment Contracts Receivable – 2012 .......................................................... Installment Contracts Receivable – 2013 .......................................................... Adjusting Entries: Installment Sales ....................................................................................................... Cost of Installment Sales ................................................................................... Deferred Gross Profit on Installment sales – 2013 ............................................ Deferred Gross Profit – 2011 (P40,000 x 40%)......................................................... Deferred Gross Profit – 2012 (P80,000 x 42%)......................................................... Deferred Gross Profit – 2013 (P110,000 x 43%)....................................................... Realized Gross Profit......................................................................................... Doubtful Accounts Expense (1/4 x 1% x P600,000) ................................................. Allowance for Doubtful Accounts..................................................................... Closing Entries: Sales ...... ..... ............................................................................................................. Merchandise Inventory, December 31....................................................................... Shipments on Installment Sales................................................................................. Merchandise Inventory, January 1..................................................................... Purchases........................................................................................................... Selling Expenses ............................................................................................... Doubtful Accounts Expense .............................................................................. Income Summary .............................................................................................. Realized Gross profit................................................................................................. Income Summary .............................................................................................. Income Summary ...................................................................................................... Retained Earnings .............................................................................................

3.

43%

600,000 600,000 200,000 200,000 114,000 114,000 476,000 476,000 210,000 210,000 790,000 560,000 40,000 80,000 110,000

200,000 114,000 86,000 16,000 33,600 47,300 96,900 1,500 1,500

600,000 260,000 114,000 240,000 476,000 210,000 1,500 46,500 96,900 96,900 143,400 143,400

Good Buy Mart Income Statement Year Ended December 31, 2013 Sales ...... ..... ............................................................................................................. Cost of sales: Merchandise inventory, January 1..................................................................... Purchases........................................................................................................... Cost of goods available for sale......................................................................... Less Shipments on installment sales.................................................................. Cost of goods available for regular sales ........................................................... Less Merchandise inventory, December 31....................................................... Gross profit on regular sales...................................................................................... Add Realized gross profit on installment sales (Schedule 1)..................................... Total realized gross profit..........................................................................................

P600,000 P240,000 476,000 716,000 114,000 602,000 260,000

342,000 258,000 96,900 354,900

Operating expenses: Selling expenses ................................................................................................ Doubtful accounts expense................................................................................ Net income .............................................................................................................

210,000 1,500

211,500 P143,400

Schedule 1

Collections .............................................. Multiply by Gross profit rate...................... Realized gross profit................................... 4.

Years of Installment Sales 2012 2013 P80,000 P110,000 42% 43% P33,600 P 47,300

2011 P40,000 40% P16,000

Good Buy Mart Balance Sheet December 31, 2013 A s s e t s Cash....... ..... ............................................................................................................. Merchandise inventory.............................................................................................. Accounts receivable .................................................................................................. Allowance for doubtful accounts............................................................................... Installment contracts receivable – 2011 .................................................................... Installment contracts receivable – 2012 .................................................................... Installment contracts receivable – 2013 .................................................................... Other assets ............................................................................................................. Total Assets ....................................................................................................... Liabilities and Equity Liabilities: Accounts payable .............................................................................................. Deferred gross profit on installment sales – 2011 ............................................. Deferred gross profit on installment sales – 2012 ............................................. Deferred gross profit on installment sales – 2013 ............................................. Total Liabilities ................................................................................................. Equity: Capital stock...................................................................................................... Retained earnings .............................................................................................. Total Liabilities and Equity ...............................................................................

Total

P 96,900

P144,000 260,000 P 62,000 3,500

58,500 20,000 60,000 90,000

200,000 P832,500

P 60,000 8,000 25,200 38,700 131,900 P406,000 294,600

700,600 P832,500

Problem 9 – 4

1.

2.

2012: GP rate

=

Deferred gross profit, 1/1 ––––––––––––––––––––– Install. contracts rec'l, 1/1

2013: GP rate

=

Gross profit –––––––––––––– Installment sales

= =

=

P21,600 + P1,200 –––––––––––––––– P24,000 + P52,000 P150,000 – P97,500 –––––––––––––––– P150,000

Installment Sales ....................................................................................................... Cost of Installment Sales ................................................................................... Deferred Gross Profit, 2013 .............................................................................. Deferred Gross profit, 2012....................................................................................... Deferred Gross Profit, 2013 ...................................................................................... Realized Gross Profit.........................................................................................

= =

=

P22,800 ––––––– P76,000

=

30%

P52,500 –––––––– P150,000

=

35%

150,000 97,500 52,500 14,400 25,900 40,300

Computation:

Installment contracts receivable, 1/1 ............................ Less Installment contracts receivable, 12/31 ................ Total credit for the period............................................. Less Credit representing repossession .......................... Credit representing collections .....................................

2012 Sales P76,000 24,000 52,000 4,000 P48,000

2013 Sales P150,000 76,000 74,000 – P 74,000

Total

Multiply by Gross profit rate ........................................ Realized gross profit.....................................................

30% P14,400

35% P 25,900

Sales ...... ..... ............................................................................................................. Realized Gross Profit ................................................................................................ Loss on Repossession........................................................................................ Cost of Sales...................................................................................................... Selling and Administrative Expenses ................................................................ Income Summary .............................................................................................. Income Summary ...................................................................................................... Retained Earnings ............................................................................................. 3.

P 40,300

212,000 40,300 400 165,000 66,000 20,900 20,900 20,900

Apple Company Income Statement Year Ended December 31, 2013 Sales ...... ..... ............................................................................................................. .................... Cost of sales ............................................................................................................. .................... Gross profit on regular sales...................................................................................... .................... Add Realized gross profit on installment sales (Schedule 1)..................................... .................... Total realized gross profit.......................................................................................... .................... Less Loss on repossession......................................................................................... .................... Total realized gross profit after adjustment for loss on repossession ........................ .................... Selling and administrative expenses.......................................................................... .................... Net income .. ............................................................................................................. ....................

P212,000 165,000 47,000 40,300 87,300 400 86,900 66,000 P 20,900

Problem 9 – 4 Schedule 1 2012 Sales P76 000 24,000 52,000 4,000 P48,000 30% P14,400

Installment contracts receivable, 1/1 .......................................... Less Installment contracts receivable, 12/31 .............................. Total credit for the period........................................................... Less Credit representing repossession........................................ Credit representing collections ................................................... Multiply by Gross profit rate...................................................... Realized gross profit...................................................................

2013 Sales P150,000 76,000 74,000 – P 74,000 35% P 25,900

Total

P40,300

Problem 9 – 5 1.

Cost of Installment Sales........................................................................................... Shipments on Installment Sales.........................................................................

54,400

Installment Sales ....................................................................................................... Cost of Installment Sales ................................................................................... Deferred Gross Profit, 2013 .............................................................................. Gross profit = P25,600  P80,000 =32% Deferred Gross Profit, 2012 ...................................................................................... Deferred Gross Profit, 2013 ...................................................................................... Realized Gross Profit.........................................................................................

80,000

54,400

54,400 25,600 14,000 8,000 22,000

Computation:

Installment contracts receivable, 1/1 ............................ Less Installment contracts receivable, 12/31 ................ Total credit for the period............................................. Less Credit representing repossession .......................... Credit representing collections .....................................

2012 Sales P82,000 _ 36,000 46,000 __6,000 P40,000

2013 Sales P 80,000 _55,000 25,000 ___ – P 25,000

Total

Multiply by Gross profit rate ........................................ Realized gross profit.....................................................

*2012 Gross profit rate=

2.

DGP, 1/1 ––––––– ICR, 1/1

=

__35%* P14,000

___32% P 8,000

P 22,000

P28,700 (26,600 + 2,100) ––––––– = 35% P82,000 (36,000 + 40,000 + 6,000)

Sales ...... ..... ............................................................................................................. Merchandise Inventory, December 31....................................................................... Shipments on Installment Sales................................................................................. Merchandise Inventory, January 1..................................................................... Purchases........................................................................................................... Repossessed Merchandise ................................................................................. Loss on Repossession........................................................................................ Operating Expenses........................................................................................... Income Summary ..............................................................................................

200,000 52,000 54,400

Realized Gross Profit ................................................................................................ Income Summary ..............................................................................................

22,000

Income Summary ...................................................................................................... Retained Earnings .............................................................................................

31,500

60,000 180,000 3,000 900 53,000 9,500

22,000

31,500

PPG Discount Center, Inc. Income Statement Year Ended December 31, 2013

Sales ...... ..... .............................................................. Cost of sales: Inventory, January 1 ........................................... Purchases............................................................ Repossessed merchandise................................... Cost of goods available for sale.......................... Less Shipments on installment sales................... Cost of goods available for regular sales ............ Less Inventory, December 31............................. Gross profit .............................................................. Less Deferred gross profit on installment sales, 2013 .......................................................... Realized gross profit, 2013......................................... Add Realized gross profit on 2012 installment sales ................................................. Total realized gross profit........................................... Less Loss on repossession.......................................... Total realized gross profit after adjustment for loss on repossession...................................... Operating expenses .................................................... Net income ..............................................................

P 60,000 180,000 __3,000 243,000 _54,400 188,600 _52,000

Regular P200,000

Installment P80,000

Total P280,000

_136,600 P 63,400

54,400 25,600

191,000 89,000

17,600 8,000

17,600 71,400

14,000 22,000 ___900

14,000 85,400 __900

P21,100

84,500 _53,000 P31,500

Problem 9 – 6 1.

London Products Schedule of Cost of Goods Sold Year Ended December 31, 2013 Merchandise inventory, January 1............................................................................. .................... Purchases ............................................................................................................. .................... Freight-in ............................................................................................................. .................... Repossessed merchandise.......................................................................................... .................... Cost of goods available for sale................................................................................. ....................

P 48,000 238,000 12,000 14,000 312,000

Less Merchandise inventory, December 31............................................................... .................... Cost of goods sold..................................................................................................... .................... 2.

London Products Schedule of Allocation of Cost of Goods Sold Year Ended December 31, 2013

Amount Cash sales .................... P60,000 Charge sales ....................120,000  Installment sales ............... 300,000

3.

52,000 P260,000

On Cash Price Basis P 60,000 100,000 240,000 P 400,000

120%  125%

Ratio to Total 60/400 100/400 240/400

Allocated Cost P 39,000 65,000 156,000 P260,000

London Products Income Statement Year Ended December 31, 2013

Sales ...... ..... ........................................... Cost of goods sold................................... Gross profit ........................................... Less Unrealized gross profit: On installment contracts receivable,12/31 (192,000 x 144/300) Realized gross profit................................ Add Realized gross profit on prior years' sales (Schedule 1): 2011......................................... 19,200 2012......................................... 14,700 Total realized gross profit........................ Less Loss on repossession (Schedule 2) .................................... Total realized gross profit after adjustment for loss on repossession..................................... Less Operating expenses ......................... Net income ...........................................

Installment Total Sales P480,000 P 300,000 260,000 156,000 P 220,000 P 144,000

92,160 127,840

92,160 51,840

33,900 161,740

33,900 85,740

10,200

10,200

151,540 93,000 P 58,540

P 75,540

Charge Sales P120,000 65,000 P 55,000

Cash Sales P 60,000 39,000 P 21,000

Schedule 1 2011 Installment contracts receivable, January 1: 2011 – P32,000  40%..................................................................................... 2012 – P56,000  35%..................................................................................... Less Installment contracts receivable, December 31................................................. Total credits ............................................................................................................. Less Credit representing repossession....................................................................... Total collections ........................................................................................................ Multiply by Gross profit rate..................................................................................... Realized gross profit..................................................................................................

2012

P80,000 _22,000 58,000 _10,000 P48,000 ___40% P19,200

P160,000 __90,000 70,000 28,000 P 42,000 ___35% P 14,700

2011 P 2,000

2012 P12,000

Total P 14,000

10,000

28,000

38,000

Schedule 2 Fair market value of repossessed merchandise..................... Less Unrecovered cost: Unpaid balance............................................................. Less Unrealized profit – 2011 – P10,000 x 40% .................................... 2012 – P28,000 x 35% .................................... Balances ........................................................................ Gain (loss) on repossession ..................................................

4,000 __6,000 P(4,000)

9,800 18,200 P( 6,200)

13,800 __24,200 P( 10,200)

Problem 9 – 7 1.

2012 2012 2012 installment sales (P400,000 x 42%*)........................................................ 2013: 2012 installment sales (P173,000 x 42%).......................................................... 2013 installment sales (P560,000 x 38.5%*)..................................................... Deferred gross profit .................................................................................................

2013

P 168,000

________ P 168,000

P 72,660 __215,600 P 288,260

*Computation of Gross profit percentages (see next page) 2012 Installment sales ........................................................................................................ P2,210,000 Less Trade-in allowances (P226,000 – P158,000) .................................................... _______– Adjusted installment sales ......................................................................................... 2,210,000 Cost of sales: Inventories, January 1 (new) ............................................................................. – Purchases (new)................................................................................................. 1,701,800 Repossessed merchandise.................................................................................. – Cost of goods available for sale......................................................................... 1,701,800 Less: Inventories, December 31 – New merchandise ...................................................................................... Repossessed merchandise.......................................................................... Total .......................................................................................................... Cost of sales ...................................................................................................... Gross profit ............................................................................................................. Gross profit percentages............................................................................................ *2012 : P195,000 x 20% =P39,000 2013 : P110,000 x 40% =_44,000 P83,000 Uncollectible installment contracts expense, per books ................... Correct Uncollectible installment contracts expense: Fair market value of repossessed merchandise – 2012 sales (P195,000 x 20%) ........................................... 2013 sales (P110,000 x 40%) ........................................... Unrecovered cost – 2012 sales [P105,000 x (100% – 42%)] ........................... 2013 sales [P82,000 x (100% – 38.5%)] .......................... Adjustment to Uncollectible installment contracts expense .............

2013 P3,100,000 ____68,000 _3,032,000 420,000 1,767,000 _83,000* 2,270,000

420,000 _______– 420,000 1,281,800 P 928,200

358,820 ____46,500 405,320 _1,864,680 P1,167,320

42%

38.5%

P 99,000

P 39,000 __44,000

P 83,000

60,900 __50,430

__111,330

__28,330 P 70,670

Installment Sales P3,032,000 1,864,680 1,167,320

Total Sales P3,237,000 _2,022,680 1,214,320

__247,170 920,150

__247,170 967,150

___51,240 971,390 ___28,330 P 943,060

___51,240 1,018,390 ___28,330 990,060 __592,960 P 397,100

Fortune Sales Corporation Income Statement Year Ended December 31, 2013 Cash Sales Sales .................................................................................... P205,000 Cost of sales .................................................................................... _158,000_ Gross profit .................................................................................... P 47,000 Less Unrealized gross profit on 2010 installment sales (Schedule 1) ..................................................................... Realized gross profit on 2013 sales .................................................. Add Realized gross profit on 2012 installment sales (Schedule 2) ..................................................................... Total realized gross profit................................................................. Less Uncollectible installment contracts expense ............................ Total realized gross profit after adjustment ...................................... Operating expenses .......................................................................... Net income ....................................................................................

Schedule 1 Installment contracts receivable 2013, December 31 ........................... ............... Installment contracts receivable 2013 defaulted................................... ............... Total ...... ..... ........................................................................................ ............... Multiply by 2013 gross profit percentage............................................. ............... Unrealized gross profit on 2013 installment sales ................................ ...............

P 560,000 ___82,000 P 642,000 ___38.5% P 247,170

Schedule 2 Installment contracts receivable 2012, January 1 ...................................................... Less Installment contracts receivable 2012, December 31 ........................................ Total credits for the period ........................................................................................ Less Installment contracts receivable 2012 defaulted ............................................... Total collections ........................................................................................................ Multiply by 2012 gross profit percentage.................................................................. Realized gross profit on 2012 installment sales......................................................... 1.

P 400,000 __173,000 227,000 __105,000 P 122,000 _____42% P 51,240

Apportionment of cost (P600,000) to Lots 1, 2 and 3: Lot 1 : 2/3 x P360,000 ................................................ Lot 2 : 2/3 x P240,000 ................................................ Lot 3 : 1/3 ................................................................... 1/3 x P240,000...................................................... Total cost......................................................................

P 240,000 160,000 P120,000 __80,000

Journal Entries for 2012 March 31 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 2)...................................................................................... Lot 2 ........................................................................................................ Deferred gain on Sale of Land...................................................................... June 30 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 3)...................................................................................... Lot 3 .... ........................................................................................................ Deferred Gain on Sale of Land..................................................................... Cash....... ..... ........................................................................................................ Interest Income (P364,000 x 12% x 3/12) .................................................... Notes Receivable (Lot 2).............................................................................. September 30 Cash....... ..... ........................................................................................................ Interest Income (P358,920 x 12% x 3/12) .................................................... Notes Receivable (Lot 2).............................................................................. October 31 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 1)...................................................................................... Lot 1 .... ........................................................................................................ Deferred Gain on Sale of Land..................................................................... December 31 Cash....... ..... ........................................................................................................ Notes Receivable (Lot 1).............................................................................. Notes Receivable (Lot 2).............................................................................. Notes Receivable (Lot 3).............................................................................. Interest Income.............................................................................................

__200,000 P 600,000

36,000.00 364,000.00 160,000.00 240,000.00 120,000.00 720,000.00 200,000.00 640,000.00 16,000.00 10,920.00 5,080.00 16,000.00 10,767.60 5,232.40 72,000.00 288,000.00 240,000.00 120,000.00 78,000.00 6,240.00 5,389.37 6,800.00 59,570.63

Computation: Collections ...................................................

Total P78,000.00

Lot 1 P12,000.00

Lot 2 P16,000.00

Lot 3 P50,000.00

Apply to interest: Lot 1 – P288,000.00 x 12% x 2/12.......... 5,760.00 Lot 2 – P353,687.60 x 12% x 3/12.......... 59,570.63 10,610.63 Lot 3 – P720,000.00 x 12% x 6/12..........______________________________________________ _43,200.00 Apply to principal ........................................ P18,429.37 P 6,240.00 P 5,389.37 P 6,800.00 2.

Deferred Gain on Sale of Land (Lot 1)...................................................................... Deferred Gain on Sale of Land (Lot 2)...................................................................... Deferred Gain on Sale of Land (Lot 3)...................................................................... Realized Gain on Sale of Land ..........................................................................

26,080.00 31,021.06 96,368.00 153,469.06

Computation: Lot 1 P78,240.00

Collections applied to principal ................... Multiply by Gross profit rates: Lot 1 – P120,000  P360,000................ Lot 2 – P240,000  P400,000................ Lot 3 – P640,000  P840,000................ Realized gain................................................ 3.

Lot 2 P51,701.77

Lot 3 P126,800.00

60% _________ P31,021.06

_____76% P96,368.00

33.33% _________ P26,080.00

Lot 3 (80% x P200,000) ............................................................................................ Deferred Gain on Sale of Land (Lot 3) (P640,000 – P96,368).................................. Loss on Repossession................................................................................................ Notes Receivable (Lot 3) (P720,000 – P6,800).................................................

160,000.00 543,632.00 9,568.00 713,200.00

Problem 9 – 9 Galaxy Investment Company Income Statement Year Ended December 31, 2013 Sales Schedule 1) ............................................................................................................. Cost of sales (Schedule 2).................................................................................................... Gross profit ...... ..... ............................................................................................................. Less Sales commissions....................................................................................................... Gross profit ...... ..... ............................................................................................................. Less Deferred gross profit Installment Notes Balance P5,370,000 ––––––––––––––––––––– =–––––––––– =67% x P6,227,000 Installment Sales P8,060,000 Realized gross profit ............................................................................................................ Expenses: Advertising and promotion........................................................................................ Sales manager's salary............................................................................................... General office expenses (1/4 x P236,000)................................................................. Net profit ....... ..... .............................................................................................................

P 8,060,000 1,612,000 6,448,000 221,000 6,227,000

4,172,090 2,054,910 P 730,000 120,000 59,000

909,000 P 1,145,910

Schedule 1

A lots : 26 @ P150,000......................................................... B lots : 32 @ P100,000 ......................................................... C lots : 12 @ P80,000 ........................................................... ..............................................................

Total Sales Price P3,900,000 3,200,000 960,000 P8,060,000

Cash Received P1,650,000 800,000 240,000 P2,690,000

Installment Notes Balance P 2,250,000 2,400,000 720,000 P 5,370,000

Unit Price P150,000 100,000 80,000

Total Sales Value P12,000,000 10,000,000 9,600,000 P31,600,000

Schedule 2 Class A............ ..... .............................................................. B............ ..... .............................................................. C............ ..... .............................................................. Total .... ..............................................................

Number of Lots 80 100 120 300

Cost of tract: Cost of land ............................................................................................................. Legal fees, etc............................................................................................................ Grading contract........................................................................................................ Water and sewerage system contract......................................................................... Paving contract.......................................................................................................... General office expenses (3/4 x P236,000)................................................................. Total ...... ..... .............................................................................................................

P 4,800,000 600,000 225,000 184,900 266,300 177,000 P 6,253,200

P6,253,200 Cost rate : –––––––––––– = 20% (rounded off) P31,600,000 Cost of sales (P8,060,000 x 20%) ...................................................................................... P 1,612,000 Problem 9 – 10 Rizal Company Income Statement Year Ended December 31, 2013 Installment sales [(P14,300 x 7) + (P725 x 4)] .................................................................... Cost of goods sold on installment (schedule 1).................................................................... Gross profit ...... ..... ............................................................................................................. Less Deferred gross profit on 19x8 sales (P103,000 – P21,000 = P82,000 x 23%*) ................................................................ Realized gross profit on 2013 sales...................................................................................... Add Realized gross profit on prior years' sales – 2011 : P60,000 x 33-1/3* .......................................................................................... 2012 : P115,000 x 35%* ........................................................................................... Total realized gross profit .................................................................................................... Less Loss on repossession (Schedule 4)............................................................................... Total realized gross profit after adjustment.......................................................................... General and administrative expenses ................................................................................... Net income (loss) .............................................................................................................

P103,000 __79,310 23,690 __18,860 4,830 P20,000 _40,250

__60,250 65,080 __33,100 31,980 __50,000 P(18,020)

*See Schedule 3 Schedule 1 Purchases (P10,500 x 8)....................................................................................................... Repossessed merchandise .................................................................................................... Cost of goods available for sale ........................................................................................... Less Inventory, December 31 – Number of units on hand ........................................................................................... Multiply by average unit cost (Schedule 2) ............................................................... Cost of goods sold on installment ........................................................................................

P 84,000 ___2,520 86,520 1 P 7,210

___7,210 P 79,310

Schedule 2 Purchases during 2013 (P10,500 x 8) .................................................................................. Add Repossessed merchandise ............................................................................................ Total .............. ..... ............................................................................................................. divide by Number of units (8 + 4) ....................................................................................... Average unit cost .............................................................................................................

P 84,000 ___2,520 P 86,520 _____12 P 7,210

Schedule 3 Sales – 2011 : 2012 : 2013 :

................................................................... P15,000 x 10.................................................... P14,000 x 20.................................................... P14,300 x 7......................................................

2011

2012

2013

P150,000 P280,000 100,100

P725 x 4........................................................... ...................................................................

_______ 150,000

_______ 280,000

__2,900 103,000

Cost of goods sold: Inventory, January 1 ........................................................ Purchases ................................................................... Repossessed merchandise................................................ Cost of goods available for sale....................................... Less Inventory, December 31.......................................... Cost of goods sold........................................................... Gross profit ...... ..... ................................................................... Gross profit rates.... ...................................................................

– 120,000 _____– 120,000 _20,000 100,000 P 50,000 33-1/3%

20,000 162,000 _____– 182,000 _____– 182,000 P 98,000 35%

– 84,000 _2,520 86,520 _7,210 79,310 P23,690 23%

Sales

Schedule 4 Fair market value of repossessed merchandise .................................................................... Less Unrecovered cost – Unpaid balance: Original sales amount (P14,000 x 4) ................................................................. Collections prior to repossession....................................................................... Total .... ............................................................................................................. Less Unrealized profit (P54,800 x 35%) ................................................................... Loss on repossession............................................................................................................

P 2,520

P 56,000 __1,200 54,800 _19,180

_35,620 P33,100