Chapter 9

Multiple Choice 9-1 Superman Company started operations January 2, 2013. The following information is gathered for 2013:

Installment accounts receivable, December 31 Deferred gross profit, December 31 (before adjustments) Gross profit rate based on sales

P 1,500,000 P 1,050,000 25%

What is the realized gross profit on sales? a. b. c. d.

P 1,350,000 P 1,125,000 P 810,000 P 675,000

9-2 Gross profit rates of Batman Company were 35%, 33% and 30% of sales for 2011, 2012 and 2013, respectively. The following account balances are available for the end of 2013.

Year of sales gross profit

Installment account receivable

Deferred ( before adjustment)

2011

P 6,000

2012

61,500

2013 120,150

195,000

What is the total realized gross profit to be recorded in the Statement of Comprehensive Income for the year ended December 31, 2013? a. b. c. d.

P P P P

107,235 102, 105 61,650 97,235

P 7,230 60,750

9-3 The following informations are obtained from the books of accounts of Robin, Inc. on June 30, 2013:

Deferred gross profit balance (After adjustment) Total collections on installment sales Gross profit rate based on cost

P 202,000 P 404,000 25%

Robin Inc. uses the installment method of accounting. What is Robin’s total installment on sales? a. b. c. d.

P 1,560,000 P 1,440,000 1,450,000 1,010,000

9-4 BMW Corporations sells car on three year installment sales contract. On December 31, 2013, the last day of BMW’s first year of operations, the results of operations before adjustments are summarized below:

Sales Cost of installment sales Operating expenses

P 1,000,000 700,000 80,000

The total collections during the year including interest and financing charges of P 100,000 is P 500,000. What is the net income of BMW Corporations for the year ended December 31, 2013? a. b. c. d.

P P P P

220,000 140,000 150, 000 120, 000

9-5 In 2013, a merchandise was sold in installment basis by MB Company for P 80,000 at a gross profit of 25% on cost. During the year, a total of P42,500, including interest of P 12,500 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. What is the gain on sale (loss) on repossession? a. (P 10,000)

b. (P 14,000) c. P 10,000 d. (P 20,000)

9-6 Casablanca, Inc. which began on January 2, 2013 appropriately uses the installment method of accounting. The following information pertains to Casablanca’s operations for 2013: Installment sales Regular sales Cost of installment sales Cost of regular sales Operating expenses Collection on installment sales

P1,000,000 600, 000 500,000 300,000 100,000 200,000

In its December 31, 2013, what amount should Casablanca, Inc. report as deferred gross profit? a. P 400,000 b. P 500,000 c. P 320,000 d. 150,000

9-7 JJ Company sold goods on installment. For the year ended, the following were reported: Installment sales Cost of installment sales Collection on installment sales Repossessed accounts Fair value of repossessed merchandise

P 3,000,000 2,025,000 1,800,000 200,000 120,000

The repossession resulted to: a. Gain of P 5,000 b. Loss of P 80,000 c. No gain, no loss d. Loss of P 15,000

9-8 In July,2012, Sta. Lucia Company who uses the installment method of accounting sold the land costing P 90,000 for P 240,000, receiving P 35,000 cash as down payment and a mortgage note for the balance payable in monthly installments. Installments received in 2012 reduced the principal of note payable of P 200,000. The buyer defaulted 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 (Loss) on Repossession

a. P (P 90,000) b. 90,000 c. (2,500) d. 3,500

15,0000 25,000 9,000 2,500

9-9 On April 1, 2013, GE Company sold for P 7, 000 refrigerator which had a cost of P 4,550. A down payment of P 750 was made with the provision that additional payments of P625 be made monthly thereafter. Interest was to be charged at a monthly rate of 2 percent on the unpaid balance of the principal. After completing four months installment the customer defaulted and the refrigerator was repossessed. At this time, the fair value of the refrigerator(used) was estimated to be P1,875. The gain (loss) on the repossession and the realized gross profit to e recognized in 2013 are: Gain (Loss) on Repossession Realized Gross Profit a. (P847.98) P1,1375.50 b. (P847.98) P983.78 c. (P562.50) P875.00 d. P562.5 P983.75

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:

Sales Collections from: 2012 sales 2013 sales Accounts written off: 2012 sales 2013 sales Gross profit rates

2012 P300,000

2013 P450,000

100,000 ---

50,000 150,000

25,000 ---

75,000 150,000 30%

40% What amount should Lexus Company report as deferred gross profit in its December 31, 2013 Statement financial Position for 2012 and 2013? a. P112,500 b. P125,000 c. P 75,000

d. P 80,000

9-11 On January 2, 2012, Mustang Company sold a car to Mr. De Jesus for P1,050,000. On this date, the car coat P735,000. Mr. De Jesus paid P150,000 as a down- payment and signed a P900,000 interest bearing note at a 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? a. b. c. d.

P180,000 P153,000 P270,000 P225,000

9-12 SM Corporation started operations in January 2, 2012 selling home appliances and furniture in installment basis. For 2012 and 2013, the following data represented operational details: 2012 Installment sales P1,500,000 Cost of installment sales 1,050,000 Collections on installment sales 2012 sales 450,000 2013 sales

2013 P1,200,000 720,000

630,000 ---

900,000

On January 8, 2013, an installment sales on account in 2012 defaulted and the merchandise with fair value of P15,000 was repossessed. The related installment receivable as of the date of default and repossession was P24,000. What is the balance of the Unrealized gross profit account as of the end 2013? a.P228,000 b. P218,400 c. P192,000 d. P275,000

P-13

Microstation Inc., sold computer equipment on an installment basis on October 1,2013. The cost of the computer was P60,000 but the installment sales price was ste at P85,000. Terms of the payment included the acceptance of a used computer equipment with a trade- in value of P30,000. Cash of P5,000 was paid in addition to the 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 16 percent gross profit was usual from the sale of the used equipment. What is the gross profit to be realized from the 2013 collections? a. b. c. d.

P34,000 P10,000 P8,000 P4,000

P-14 On December 31, 2012, Jacinto Steel Inc., sold construction equipment to Anthony Company for P3,600,000. The equipment had cost of P2,400,000. Anthony Company paid P600,000 cash on December 31,2012 and signed 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 paid P900,000 including interest of P300,000. For the year ended December 31,2013, what total amount of revenue should Jacinto Steel Inc., recognized from construction equipment sale financing? a. b. c. d.

P300,000 P200,000 P500,000 P240,000

P-15 ACA Video Company sells betamax equipment. It maintains its accounting records on a 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 downpayment of P6,000 was received along with the contract calling for the subsequent payment P1,000 on the first cay of each month starting on the following month. No interest was added on the contract. Mr. Santiango paid the monthly installment promptly on November 1 and December 1 2012. He even made seven installments in 2013 after which he defaulted the contract. The set was repossessed on November 1, 2013. Assuming the repossessed set has the fair value of P4,000, what is the gain (loss) on the repossession recognized? a. b. c. d.

P(2,750) P2,750 P750 P1,500

P-16 Gothong Inc., sells automatic voltage regulators costing P700 at the price of P1,200. Cardinal Audio buys a dozen voltage regulators on installment and trade- in six (6) of its units at a trade- in value of P300 eah. Gothong Inc., spends P25 to recondition the old units and sells them at P315. Gothong Inc., expects 10 percent gross profit from the sale of voltage regulators. How much is the over- allowance granted by Gothong Inc., on the trade- in? a. b. c. d.

P249 P150 P339 P189

P-17 The books of Concepcion, Inc., show the following balances on December 31, 2013: Accounts Receivable Deferred Gross Profit (before adjustments)

P627,500 P76,000

Analysis and aging of the accounts receivable reveal the following: ______________________________________________________________________________________ Regular accounts 2012 installment accounts 2013installment accounts

P415,000 P32,500 P180,000

Sales on an installment basis on 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. b. c. d.

P23,500 P52,500 P45,000 P69,750

P-18 AMG Corporation sell goods on installment basis, at the year end, gross profit is recognized in proportion to collections. The following data are obtained from the records of AMG Corporation:

January 31 December 31 Installment receivable: 2011 sales 2012 sales P337,200 2013 sales P2,505,450

P120,100 P1,772,300

__

__

Sales and cost if sales for the three are as follows:

2011 Sales P3,010,000 Cost of Sales P1,425,600

2012

P1,900,000

2013 P2,160,000

P1,235,000 P1,896,300

In 2013, the company repossessed merchandise with an estimated resale value of P10,500 after reconditioning cost of P300. A P1,700 was normal from sale of repossessed merchandise. The sales were made in 2012 for P27,000 on which P16,00 was collected prior to default. As collections are made the company debits Inventory of repossessed merchandise account and credits Installment accounts receivable for the unpaid balance,/ what is the amount of adjustments for the Inventory of repossessed merchandise to the extent of the unrealized gross profit? a. A decrease ofP2,500 b. A decrease of P6,240 c. Zero d. A decrease of P3,740

P- 19 The following information pertains to the sale of real estate by Filstate Corporation on December 31, 2012: Sales Price: Cash down- payment P600,000 Mortgage Payable P5,400,000 Cost

P4,000,000

The mortgage payable is to be paid in nine annual installment of P600,000 beginning December 31, 2013 plus interest of 10 percent. The December 31,2013 installment was paid a 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. P540,000

b. None c. P1,040,00 d. P740,000

P-20 Presented below are the information taken from the books of Four Sisters Company: 2012 Sales:

Regular P125,000 Installment P62,500 P100,000 Cost of Goods sold: Regular P75,000 Installment P31,250 P45,000 Operating expenses P25,000 P31,250 Collections on Accountants Regular sales P100,000 Installment sales- 2012 P37,500 Installment sales-2013 __ P62,500 What is the net income for the year ended December 31,2013? a. P78,125 b. P93,750 c. P98,750 d. P90,625

P-21 The following data pertain to installment sales of Heart’s Stone: Down Payment, 20% Installment sales: 2011 P545,000 2012 P785,000 2013 P960,000 Mark up in cost, 35% Collections after down payment are: 40% during year of sale 35% during the year after 25% on the third year What is the balance of The Deferred Gross Profit -2012 at December 31,2012? a. P97,689 b. P131,880 c. P141,112 d. P114,063

P-22

2013

P187,500

P112,500

P137,500 P25,000

JGG Company began operations on June 1, 2013. The following information extracted from its record for the year- end: Cost of installment sales P1,093,750 Cost of regular sales P1,050,000 Mark-up on installment sales 140% of cost Mark-up on regular sales 33 1/3 on sales Balances at December 31,2013 Installment accounts receivable P1,575,000 Accounts receivable P735,000 Operating expenses 70% of realized What is the net income for the year ended December 31,2013? a. P341,250 b. P267,750 c. P90,157 d. P174,000

P-23 TMT Company, which began operations on January 2,2013 appropriately uses the installment method of accounting. The following pertain to 2013 operations: Installment sales Regular sales Cost of regular sales

P900,000 P375,000 P215,000

P44,000 Cost of installment sales P630,000 P100,000 Fair value of repossessed Merchandise P54,000 P4,000

Operating expenses P72,000 Collections(including Interest of P24,000) P312,000 Installment accounts written- off due to defaults Repossessed accounts Reconditioning cost

What is the net income for the year ended December 31,2013? a. b. c. d.

P151,600 P127,600 P158,400 P165,600

P-24 Sulu Company is a dealer of air conditioner. For the period of May 1, 2013 to May 31, 2013 Sulu Company gives trade discount of 10% to all its buyers. On May 1, 2013, five units of air conditioners with a total list price of P100,000 and total cost of P59,800 were sold to Mr. Ramos’. Sulu company granted an allowance of P10,000 for Mr. Ramos used air conditioners as trade in although the current fair value is P12,000. The balance was payable as follows: 20% of the balance paid at the time of purchased; the rest is payable in 10 months starting June 1, 2013. A 15% gross profit rate is usual from the sale of second hand air conditioner.

After six months of paying, Mr. Ramos defaulted in the payment of December I, 3013. The five units were repossessed and it would require P2,000 reconditioning cost for each unit before it could be resold for P6,000 each. 1. How much is the gain (loss) on repossession to be recognized on December 31,2013? a. P3,360 b. (P3,360) c. P1,760 d. (P1,760) 2. What is the total realized gross profit under installment method to be adjusted on December 31,2013? a. P23,240 b. P19,040 c. P18,496 d. P22,576

P-25 On July 10,2013, Toyota Motors Inc., sold a 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 spending reconditioning cost of P22,500. After paying three annual installments, Mr. Sy suffered major financial setback incapacitating him to continue paying. The car was subsequently repossessed. When reacquired, the car was appraised to have a fair value of P300,000. 1. What is the gain (loss) on repossession? a. (P62,617.50) b. P62,617.50 c. (P62,716.50) d. P62,716.50 2. Under the installment method, how much is the realized gross profit to be recognized at the end of the year? a. P96,003 b. P75,625 c. P100,000 d. P90,073

P-26 Computers Inc., sells computer on the installment basis. For the year ended December 31,2013, the following were reported: ______________________________________________________ Cost of installment sales Loss on repossession Fair value of repossessed merchandise Account defaulted

P525,000 P13,500 P112,500 P180,000

Deferred gross profit, December 31 P108,000 ________________________________________________________ How much was collected during the year? a. b. c. d.

P210,000 P264,000 P390,000 P415,715

P-27 Kia Motors sells car both on installment and cash basis. Om March 30,2013, Kia Motors sold a car to Mr. Tom for P525,000 costing P414,000. A used car was accepted as a down payment, P128,00 being allowed on the trade- in. the used car can be resold for P162,200 after reconditioning cost of P7,660. The company expects to make a 20% gross profit on the sale of used car. The balance of the sale is to be paid on a 10- month basis starting May 31, 3013. Mr. Tom defaulted the payment starting November 1, 2013 and the car was immediately repossessed. The repossessed car was appraised at a fair value of P93,750 at the time of repossession. 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. What is the realized gross profit on December 31,2013? a. P97,450 b. P98,990 c. P71,740 d. P47,640 2. What is the net income for the year ended December 31,2013? a. P64,200 b. P38,450 c. P49,100 d. P40,100

P-28 My Home Inc., sells appliances on installment basis. Below are some of the information from the records of the company: 2013 Cost of sales P596,160 Gross profit on sales Collections on: 2013 sales 2012 sales 2011 sales P280,000

2012

P850,000 32%

2011 P686,000

30% P425,000 P258,000 P185,000

28%

P320,000 P152,000

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 deferred gross profit as of December 31,2013? a. b. c. d.

P442,680 P440,404 P428,080 P440,176

P-29 SM Appliance company uses the installment method of accounting. Pertinent data from the company’s records show the following: 2013 Installment sales P750,000 P900,000 Cost of sales P562,500 P630,000 Deferred gross profit, December 31 2011 P141,000 2012 2013

__ __

2012

2011 P937,500 P712,500

P45,000 P150,000 __

P30,000 P195,000

1. How much is the total collection during 2013? a. P930,000 b. P750,000 c. P250,000 d. P850,000 2. What is the total balance of the Installment Accounts Receivable account as of December 31,2013? a. P775,000 b. P750,000 c. P770,000 d. P800,000